In Grewal v. Mann, 2021 BCSC 220, the parties disputed the impact of a property valuation which issued from an expert determination process established in their settlement agreement. Mr. Justice Peter H. Edelmann granted leave to appeal on three (3) grounds which he determined raised extricable questions of law: (i) the arbitrator allowed his focus on the overall factual matrix to overwhelm the words of the settlement and selected a property valuation method “directly at odds” with Petitioner’s ownership of the property and a date agreed to by the parties; (ii) while mistake or error on the part of an expert determination is not by itself sufficient to invalidate the valuation, the mistake may show that the expert’s determination did not comply with the contract; (iii) there was no evidence before the arbitrator that the parties challenged the valuation and that it is “well-established that it is an error of law to make a finding of fact for which there is no evidence”.
Petitioner and Respondents, former business partners, had entered into a May 27, 2014 agreement which set out the process by which they would separate their business and financial affairs. The process included mediation and, if necessary, arbitration, conducted by the same neutral.
Over a year later, on October 30, 2015 Petitioner and Respondents entered into a binding settlement agreement (“Settlement”) recorded by exchange of e-mails between counsel acting on their behalf. The terms involved Respondents paying Petitioner $18.6 million in instalments and transferring to Petitioner their interests in a particular property (“Gibsons Property”). The key paragraph in the Settlement read as follows:
“4. All [Respondents’] interest in Gibsons transferred to [Petitioner]. [Respondents] will quit claim their interests in the property and their shares in the bare trustee will be redeemed for $1. An appraisal of the value of the parties interest in the land will be conducted within 30 days by an appraiser appointed by the mediator/arbitrator. If the value of the interest of the parties in the land is less than $2,000,000, the difference between $2,000,000 and that lesser value will be added to the payment in paragraph 2 above. If the value of the interest of the parties in the land is greater than $2,000,000, the difference between $2,000,000 and that greater value will be deducted from the payment in paragraph 2 above”.
The arbitrator appointed an appraiser to conduct an independent appraisal of the Gibsons Property valued as at October 30, 2015, the date of the Settlement. The appraiser’s March 2016 report (“Steckley Valuation”) valued the Gibsons Property at $4,040,000.00 as of the October 30, 2015.
Petitioner and Respondents held a collective interest of 43.3% in the Gibsons Property at the time of settlement which represented $1,750,666.66 of the $4,040,000.00 Steckley Valuation. Petitioner submitted that the difference ($249,333.34) should have been added to the outstanding instalment payment owing to him. Due to a misunderstanding that the parties’ interest was 50%, Respondents sought credit for $20,000.00. Following an agreement allowing for the sale of the Gibsons Property under reserve of their disagreement, and a holdback in trust of 50% of the proceeds, the Gibsons Property sold for $7,980,000.00 on June 23, 2017.
Respondents initiated arbitration on July 5, 2018 seeking to obtain the proceeds in excess of the $2,000,000.00 held in trust. Respondents filed a “technical report” authored by a third party which alleged deficiencies in the Steckley Valuation and urged that it be ignored. Respondents sought a valuation based on the sale price in June 2017 entitling them to the funds in excess of the $2,000,000.00 payable to Petitioner. Petitioner replied by tendering another report which concluded that the Steckley Valuation did not undervalue the Gibsons Property.
After a one (1) day hearing on December 2, 2019, the arbitrator issued a May 15, 2020 decision (“Award”) which Edelmann J. excerpted paras 11, 12 and 14 at para. 12 of his reasons:
“11. The starting point in any discussion on this point is that [Respondents] were to pay [Petitioner] a total sum of $20.6 million in property and cash. Of that sum, $18.6 million was to be paid in 3 installments. The remaining $2.0 million was to come from the sale of the Gibsons Property. That much is clear from the wording of paragraph 4. The $2.0 million was clearly a part of the $20.6 million. It was never the intention of the parties to transfer the property to [Petitioner] unconditionally. The Gibsons transfer to [Petitioner] was not a stand-alone transaction. In fact the parties carefully considering the wording that went into paragraph 4. The formula is not complicated. If the value was less than $2.0 million then [Respondents] would be required to make up the shortfall through an additional payment. However, if it was in excess of $2.0 million it would be deducted from the total purchase price stated in paragraph 2. If I were to accede to [Petitioner]’s argument, the total purchase price would exceed $20.6 million. That clearly was not the intention of the parties.
12. I pause here to note that much has been said about the value of the property. With respect, [S] appraisal seems to be somewhat suspect in light of the questions raised by [D] and of course the eventual sale price. In any event as stated above, the intentions of the parties was to pay [Petitioner] $20.6 million. Of that amount, $18.6 billion [sic] was to be paid in installments, the remaining $2.0 million was to come from the sale of the Gibsons Property.
14. In reaching my decision the overall consideration must be the intent of the parties which is embodied in paragraph 4 of the settlement agreement. In summary it is not in dispute that the total purchase price was $20.6 million. As well there is no dispute that $18.6 million was to be paid in installments. Accordingly there will be an order that of the monies that are held in trust with [MH], $2.0 million ought to be paid to [Petitioner] while her [sic] remaining funds will be paid to [Respondents]”.
Petitioner applied under section 31 of the Arbitration Act, RSBC 1996, c 55 for leave to appeal a May 15, 2020 award (“Award”). (Note: B.C. introduced new legislation, Arbitration Act, SBC 2020, c 2, effective September 1, 2020. Given the timing of the initial arbitration and the transitional provisions, the former Arbitration Act governed the application.)
Petitioner alleged three (3) errors and framed them as errors of law, namely that the arbitrator:
(1) disregarded the valuation process provided in paragraph 4 of the Settlement and created instead a new valuation process not provided in the Settlement, effectively creating a new agreement between the parties;
(2) failed to apply the correct legal test to Respondents’ challenge to the Steckley Valuation that was commissioned by the arbitrator in accordance with paragraph 4 of the Settlement; and,
(3) ignored, forgot or misconceived the evidence concerning the timing of Respondents’ challenge to the Steckley Valuation.
Edelmann J. relied on the three (3) requirements for leave identified in MSI Methylation Sciences, Inc. v. Quark Venture Inc., 2019 BCCA 448 para. 54: the appeal must be based on a question of law arising out of the award; the leave judge must be satisfied that one of the three circumstances identified in s. 31(2) of the Arbitration Act exists; and, the leave judge must be prepared to exercise the residual discretion implicit in the phrase “the court may grant leave …”.
Issue (1) – Having identified the requirements, Edelmann J. observed that the leave to appeal application “turns primarily on the first question”. He agreed that that the arbitrator “allowed his focus on the overall factual matrix to overwhelm the words of the contract” and observed that Petitioner’s first ground tracked the wording in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 para. 63. The arbitrator’s focus resulted in an extricable question of law.
“In particular, I note that clause 4 of the contract on its face appears to require the transfer of the Gibsons property to the petitioner, and not simply the transfer of $2 million. Not only does the Arbitrator’s decision fail to engage with this aspect of the contractual text, but selects a valuation method directly at odds with the Petitioner’s ownership of the property. I am unable to discern any engagement or justification in the decision for a valuation date of July 2017, if the Petitioner was to be the owner of the property as of October 2015”.
Edelmann J. cautioned that his comments were based on only a preliminary assessment and “should not be taken as binding on the judge ultimately hearing the case”.
Issue (2) – Edelmann J. acknowledged that Petitioner’s second ground challenged the Steckley Valuation and, as such, related more to a choice of valuation than to an extricable question of law. Referring to Legal & General Life of Australia Ltd. v. A. Hudson Pty. Ltd. (1985), 1 NSWLR 314, Edelmann J. still accepted that it proceed as a question of law and left to the judge hearing the appeal.
Though not cited in the reasons, the 1985 decision at pp. 335-36 provides as follows:
“While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract … In each case the critical question must always be: Was the valuation made in accordance with the terms of the contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer”.
Issue (3) – Edelmann J. characterized the third ground raised as being a misapprehension of the evidence. He noted that Respondents did not appear to “take issue” with Petitioner’s allegation that the arbitrator had erred in determining that Respondents had questioned the validity of the Steckley Valuation.
“On the record before me, it would appear there was no evidence before the Arbitrator that the Respondents challenged the Steckley appraisal until sometime after the sale of the Gibsons property in 2017. In the intervening period, far from questioning the validity of the appraisal, it would appear that the Respondents sought to rely on the Steckley appraisal in the allocation of credit between the parties”.
Edelmann J. drew from Aubrey v. Teck Highland Valley Copper Partnership, 2017 BCCA 144 for the statement that ““well-established that it is an error of law to make a finding of fact for which there is no evidence”.
“I am satisfied on the record before me that the alleged failure to consider the evidence would constitute an error of law. I am also satisfied there is an arguable case that the error could have had a material effect on the Arbitrator’s assessment of the appropriate valuation method to be used in the circumstances”.
urbitral notes – First, Edelmann J.’s reference to Aubrey v. Teck Highland Valley Copper Partnership, 2017 BCCA 144 brought readers to the following paragraph which provided further references.
“[22] This issue concerns contract formation (rather than interpretation), which is a question of fact: Lacey v. Weyerhaeuser Company Limited, 2013 BCCA 252 at para. 40. Questions of fact are reviewable only for palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33 at paras. 1, 5, 10, 20–23; Benhaim v. St‑Germain, 2016 SCC 48 at paras. 36-39. It is also well-established that it is an error of law to make a finding of fact for which there is no evidence: R. v. J.M.H., 2011 SCC 45 at paras. 25–32; Thunderbird Entertainment Ltd. v. Greater Vancouver Transportation Authority, 2012 BCCA 294 at para. 39, citing Canadian Lift Truck Co. Ltd. v. Deputy Minister of National Revenue for Customs and Excise (1955), 1955 CanLII 411 (SCC), 1 D.L.R. (2d) 497 at 498 (S.C.C.)”.
Second, Edelmann J. referred also to R. v. J.M.H., 2011 SCC 45 (CanLII), [2011] 3 SCR 197.
“[25] It has long been recognized that it is an error of law to make a finding of fact for which there is no supporting evidence: Schuldt v. The Queen, 1985 CanLII 20 (SCC), [1985] 2 S.C.R. 592, at p. 604. It does not follow from this principle, however, that an acquittal can be set aside on the basis that it is not supported by the evidence. An acquittal (absent some fact or element on which the accused bears the burden of proof) is not a finding of fact but instead a conclusion that the standard of persuasion beyond a reasonable doubt has not been met. Moreover, as pointed out in R. v. Lifchus, 1997 CanLII 319 (SCC), [1997] 3 S.C.R. 320, at para. 39, a reasonable doubt is logically derived from the evidence or absence of evidence. Juries are properly so instructed and told that they may accept some, all or none of a witness’s evidence: Lifchus, at paras. 30 and 36; Canadian Judicial Council, Model Jury Instructions, Part III, Final Instructions, 9.4 Assessment of Evidence (online)”.
Third, for comments on the application of Legal & General Life of Australia Ltd. v. A. Hudson Pty. Ltd. (1985), 1 NSWLR 314, see “Court clarifies the circumstances in which an expert determination is reviewable” by Ms. Gitanjali Bajaj and Ms. Taryn Jones, DLA Piper and “How “final and binding” is an expert determination?” by Mr. Andrew Lacey, McCabe Curwood.