B.C. – Leave to appeal denied where alleged legal errors did not reflect arbitrator’s reasoning – #530

In Ecoasis Resort and Golf LLP v Bear Mountain Resort & Spa Ltd., 2021 BCCA 285, the Applicants (Bear Mountain and related companies) argued on leave to appeal that the arbitrator committed four extricable errors of law relating to whether it was an implied term of a lease that the lessees would have access to limited common property.  The Arbitration Act, S.B.C. 2020, c. 2, like the previous Act, allows appeals on questions of law alone provided they satisfy certain other conditions.  Two of the alleged extricable legal errors concerned whether the arbitrator implied a term based on a wrong principle; the third concerned whether the arbitrator, in interpreting the lease, allowed the factual matrix to overwhelm the words of the contract;  the fourth concerned whether the arbitrator misapplied the law of the duty of good faith by implying a term into the agreement.  On examination, Justice Bennett concluded that none of the alleged errors reflected the arbitrator’s reasoning and, further, “all of the so-called legal issues raised by the applicant, fall into the category of mixed fact and law.  I do not see any extricable question of law arising from the reasons of the arbitrator” (para. 49).   Leave to appeal was denied.

The underlying dispute related to the Westin Bear Mountain Golf Resort & Spa, which consists of a hotel and two 18-hole Jack Nicholas-designed golf courses.  The Applicants purchased the hotel from the Respondent, but the Respondent retained the golf courses, practice facility and driving range and leased back the pro shop space in the hotel from the Applicants. The parties entered into an Operations Agreement and Commercial Lease for the continued integrated operation of the hotel and golf business.  Relations between the parties deteriorated and they agreed to arbitrate the disputes between them.  One of the many issues arbitrated concerned the use of Limited Common Property specifically “the car staging area outside the pro shop and the patio for the member’s lounge” (para. 5).  This became the subject of the leave to appeal application.

At the arbitration the Respondent argued, among other things, that the use of the disputed areas was permitted as an express or implied term of the lease.  The Applicants argued that the Commercial Lease clearly identified the areas that were leased, and they did not include the disputed areas. 

The arbitrator concluded:

“186. It is an implied term of any agreement in the nature of a lease of premises that there will be use of common property. In this case there are additionally express terms of the Operations Agreement that contemplate use by Ecoasis of the staging area and the members lounge patio without additional payment. Section 1.1(f) acknowledges the operations of the golf and tennis business from hotel premises, and Section 1.1(r) acknowledges the golf and tennis business pre-existing the sale of the hotel as establishing a standard to be recognized by the parties. The parties objectively intended that it would be business as usual after the sale of the hotel to the extent possible in the same manner as before the sale. There was an implied term of good faith in both agreements that would preclude either party from post-contractual conduct that would deny the other party the benefit of the bargain. Use of the patio and cart staging areas are examples of such benefits. There was pre-existing common use of such areas as the driving range and mens’ locker room that were important for the business of Hotel and use of the patio and common area outside the pro shop that were important for the business of Ecoasis.

188. It is common ground that the staging area and the members lounge patio were part and parcel of the golf business at the date of the sale of the hotel. Continued use of the staging area and the members lounge patio by Ecoasis is thus contemplated in both implied and express terms of the Operations Agreement and the Commercial Lease.”

On the leave to appeal application, Justice Bennett dismissed all the grounds argued for leave to appeal because she found they did not reflect the actual reasoning of the arbitrator. 

The first and second bases argued for leave to appeal were that, contrary to the finding of the arbitrator quoted in paragraph 186 of the award reproduced above, it is not always the case that a lease will have an implied term regarding the use of common property.  The Applicants cited the case Boutsakis v. Kakavelakis, 2008 BCCA 13 at paras. 30–31 in support of this position.  They argued this alleged error permeated the award.   

Justice Bennett dismissed this argument:

“[43] While the arbitrator may have overstated the point, when his reasons are examined carefully, it is apparent that he did not rely on an assumption that the use of the Limited Common Property was an implied term of the lease when he came to his conclusion. In my view, his conclusion is not based on the application of a wrong principle, but on interpreting the objective intentions of the parties in the context of the agreements and the factual matrix, as he sets out in paras. 185–189…

[44] I find that the first question is not a question of law alone. The second question is a repeat of the first question with more specifics. It as well does not raise a question of law alone.”

Concerning the third basis argued for leave to appeal, whether the arbitrator permitted the factual matrix to overwhelm the words of the lease, Justice Bennett simply concluded the arbitrator considered and applied the surrounding circumstances but did not ignore the words of the agreement in the process.  Therefore, she found this basis for leave did not raise a question of law alone.

The final ground raised by the Applicants was that the arbitrator erred in his application of the “good faith principle”, contrary to the law established in Bhasin v. Hrynew, 2014 SCC 71  In particular, the Applicants relied on paragraph 189 of the award to demonstrate this:

“189. It is not necessary to address issues of promissory estoppel or quiet enjoyment of property in order to resolve the Limited Common Property issue. The request by Ecoasis for an order entitling Ecoasis to continued use of the staging are and the members lounge patio is granted. The order requested for a finding that Hotel was not entitled to use premises leased by Ecoasis is dismissed. There is an implicit obligation on both parties to act in good faith in the respective operation of the hotel and golf businesses, with cooperative use of areas that may be owned or leased by the other party that are necessary to give efficacy to the Operations Agreement and the Commercial Lease. Just as Ecoasis may have a right to continued use of the members lounge patio, Hotel is entitled to use of the driving range and the mens’ locker room facilities for its guests.” [Emphasis added by Justice Bennett.]

Justice Bennett dismissed this basis for leave for appeal stating:

“[48] I do not read the arbitrator’s reason in the same way as the applicant. The use of the term “good faith”, while clearly a legal term with a certain meaning, appears to have been used by the arbitrator as it might commonly be used, meaning the parties have a duty “to get along”. He had already made his decision when he made the additional observations in para. 189. In my view, by reference to good faith in this context, he has not applied a wrong legal principle”.

Having found no extricable errors of law had been raised by the Applicants, Justice Bennett concluded it was unnecessary for her to consider the other factors required for leave under the Arbitration Act and dismissed the application.

Contributor’s Note

For leave to appeal applications, predicting whether an extricable error of law will be found where the issue is one of contractual interpretation continues to be a mug’s game. For example, contrast this case with Escape 101 Ventures Inc. v. March of Dimes Canada, 2021 BCCA 313, which relies on substantially the same authorities.  There the Court granted leave because the arbitrator allegedly misapprehended the evidence of post-contractual conduct, and this misapprehension was relied on by the arbitrator in interpreting the contract.  The Court concluded this “affected the result of the arbitration and, in my view, lays the foundation for an extricable error of law” (para. 33).