Brown v Smithwick, 2024 BCCA 83 is about an application for leave to appeal an interim award brought pursuant to section 59 of the British Columbia Arbitration Act, SBC 2020 c 2 (“Arbitration Act”). The Applicant sought leave to appeal on the ground that the arbitrator had erred in law by concluding that a debt that the Applicant owed to the Respondent was a debt within section 178(1)(e) of the Bankruptcy and Insolvency Act, RSC 1985, c B03 (the “BIA”), as a debt that arises out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity. The reasons of the Court focused on the issue of whether the leave application was premature because the arbitration had not yet ended. The Court held that while it has the discretion to grant leave to appeal from an interim arbitral award, the circumstances of the case weighed against exercising that discretion, including: (1) early judicial intervention would interfere with the arbitration process that the parties had agreed to; (2) the Applicant had not demonstrated that it would be prejudiced by the adjournment; and (3) there could be multiple leave applications to the Court arising from the same arbitration. The Court adjourned the leave application pending the conclusion of the arbitration.
Bankruptcy Proceeding – The Applicant was involved in personal bankruptcy proceedings. It is not evident from the Court’s decision in Brown if the Applicant had been discharged from bankruptcy at time of the decision.
The Arbitration – Separately, the Applicant and the Respondent were parties to an arbitration that related, in part, to a debt that the Applicant owed the Respondent. The Court’s reasons in Brown include few comments about the issues that were before the arbitrator. It is also not evident if the arbitrator made the finding that the Applicant was liable for the debt or if this finding was made in a different proceeding. However, it is clear from the decision in Brown that one of the issues before the arbitrator was whether the Applicant’s debt to the Respondent would survive the discharge of the Applicant’s bankruptcy.
The arbitrator issued an interim award in the arbitration, which concluded, in part, that the debt that the Applicant owed the Respondent was a debt as described in section 178(1)(e) of the BIA. Section 178(1)(e) says that “[a] n order of discharge does not release the bankrupt from…any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity…”. The result of arbitrator’s finding was that the Applicant’s debt to the Respondent would not be released by an order of discharge in the Applicant’s personal bankruptcy.
The arbitrator did not make a finding, in the interim award, about the quantum of the Applicant’s debt. Rather, the arbitrator directed that the parties make submissions about the quantification of the debt. The arbitrator reserved the right to consider these submissions, at a later date, in the arbitration.
Application for leave to appeal – The Applicant brought an application to a single Justice of the British Columbia Court of Appeal, in Chambers, for leave to appeal the interim award. The application was brought pursuant to section 59 of the Arbitration Act. It states, in relevant part, as follows:
“59 (3) A party to an arbitration may seek leave to appeal to the Court of Appeal on any question of law arising out of an arbitral award unless the arbitration agreement expressly states that the parties to the agreement may not appeal any question of law arising out of an arbitral award.
(4) On an application for leave under subsection (3), a justice of the Court of Appeal may grant leave if the justice determines that
(a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,
(b) the point of law is of importance to some class or body of persons of which the applicant is a member, or
(c) the point of law is of general or public importance.” [Emphasis added.]
The Applicant sought leave to appeal the interim award on the ground that the arbitrator had erred in law in concluding that the debt fell within section 178(1)(e) of the BIA because he had not found that there was a causal connection between the Applicant’s fraudulent misrepresentations and the creation of the debt.
The Respondent argued that: (1) the application did not raise an extricable question of law; (2) even if the application did raise a question of law, the law is settled and therefore the issue raised was not one of public importance; (3) the arbitrator found that the debt would survive bankruptcy for two independent reasons, neither of which the Applicant sought to challenge on appeal; and (4) the leave application was premature.
Decision of the BCCA –The Court did not evaluate the merits of the leave application. Instead, it held that the application was premature and adjourned it pending the conclusion of the parties’ arbitration for the following reasons.
First, the Court found that the Applicant would not be unduly prejudiced by the time that would pass during the adjournment of the leave application. The Applicant had preserved his right to appeal the interim award by filing his leave application within the time required by section 60(1) of the Arbitration Act. This section provides that an applicant has 30 days to appeal an arbitral award from the date on which the applicant receives an arbitral award.
Second, the Court held that although it had the discretion to grant leave to appeal from an interim arbitral award and there “may be cases where the demands of justice and efficiency will weigh in favour of early intervention by the court”, the general rule is that the Court should not entertain appeals at an interlocutory stage of the proceedings (at para 11). The Court described the circumstances of this case that weighed against judicial intervention:
1. Granting leave at this stage of the proceedings would interfere with the arbitration process that the parties agreed to. The debt issue arose out of the parties’ agreement. That agreement contained an arbitration clause. Granting leave to appeal the interim award would fragment and interrupt the continuation of the arbitration.
2. The Court was not aware of any interest of justice reasons that required the Court to proceed with the leave application now.
3. The Applicant did not demonstrate that an adjournment of the leave application pending the conclusion of the arbitration would prejudice him.
4. Granting leave to appeal could may give rise to more than one application for leave to appeal arising out of the same arbitration. The Court commented that the practice of “litigating in slices” should be avoided (at para 18).
5. Both judicial economy and the public interest in avoiding multiplicity of proceedings (being concurrent arbitration and court proceedings) weighed in favour of the Court exercising its discretion to adjourn the leave application.
Contributor’s Notes:
The findings of the British Columbia Court of Appeal in Brown are relevant to the strategic procedural decisions that a party to a domestic arbitration makes when an interim award is issued in the arbitration.
First, based on Brown, it is unlikely that a court will consider hearing an application for leave to appeal an interim arbitral award while the underlying arbitration is ongoing. There are a number of factors that weigh against a court intervening at an interlocutory stage of arbitration proceedings.
One factor is the parties’ arbitration agreement. If the parties have a mandatory arbitration clause that requires that their dispute is arbitrated, this weighs against intervention by the court until after the arbitration has ended. Another factor is the risk of a multiple leave applications arising out of the same arbitration. This is not an efficient use of judicial resources. In addition, there is the practical risk that the Court may issue a decision in response to a leave application before the arbitrator issues a final award that corrects or amends the interim award (see, e.g., Desert Properties Inc v G&T Martini Holdings Ltd., 2024 BCCA 24 at paras 22-24). This is not a desirable outcome.
Second, the decision in Brown suggests that if a party seeks leave to appeal and interim award and it wants to have an application heard before the conclusion of the arbitration, that party will need to demonstrate that it would be unduly prejudiced by the adjournment. Notably, however, the Court in Brown did not preclude the possibility of other circumstances warranting early intervention: “[t]here may well be cases where the demands of justice and efficiency will weigh in favour of early intervention by a court in these circumstances” (at para 11).
Third, while a court is unlikely to hear an application for leave to appeal an interim award while the underlying arbitration is ongoing, a party should consider if it needs to file an application for leave to preserve its right to seek leave at a later date. The domestic arbitration acts in the Canadian provinces provide a time limit to seek leave to appeal an arbitral award. See, for example, section 60 of the British Columbia Arbitration Act, section 46(1) of the Alberta Arbitration Act, RSA 2000, c A-43, and section 47 of the Ontario Arbitration Act, SO 1991, c 17. Each of these provisions states that a party has 30 days from the date that it received the arbitral award to commence an appeal of that award. Finally, in this case there were parallel court and arbitration proceedings on issues arising out of the BIA. This should make clear, if there is any doubt remaining, that parties may seek statutory remedies by way of arbitration.