In MDG Contracting Services Inc. v. Mount Polley Mining Corporation, MDG sought leave to appeal an arbitral award on the basis of section 30 (errors of law) and to set aside the award on the basis of section 31 (failing to observe the rules of natural justice) of the former B.C. Arbitration Act, RSBC 1995, c 55. Justice McDonald dismissed MDG’s petition on the basis that it failed to meet the threshold requirement for granting leave in cases where there is a “clearly perceived and delineated” question of law, or, a rare extricable question of law. Rather, MDG’s arguments raised questions of mixed fact and law by submitting that despite the Arbitrator making a correct statement regarding the law, when properly applied, it should have resulted in a different outcome. The court also rejected MDG’s argument that the Arbitrator failed to observe the rules of natural justice when he failed to explain how he reached a “summary conclusion”, as the Award contained ample detail regarding the Arbitrator’s findings.
On November 29, 2017, the Petitioner, MDG Contracting Services Inc. (“MDG”), and the Respondent, Mount Polley Mining Corporation (“Mount Polley”), entered into a contract for MDG to provide dredging work to remove tailings from an area within the Mount Polley Mine (the “Agreement”). MDG’s work removing tailings did not go as planned and a dispute arose concerning the Agreement. The work required by the Agreement was not completed and Mount Polley terminated the Agreement for cause. MDG alleged that the problems giving rise to the dispute were caused mainly by Mount Polley’s negligent pre-Agreement representations, coupled with its wrongful failure to disclose relevant information to MDG about the nature of the tailings to be dredged.
MDG issued a notice of civil claim (the “Claim”) alleging that Mount Polley had breached and wrongfully terminated the Agreement and made actionable misrepresentations regarding the tailings. Mount Polley counterclaimed against MDG and alleged that MDG had breached the Agreement on numerous grounds, including by refusing to complete the work.
MDG also issued a notice of arbitration. The parties agreed to use their Supreme Court pleadings as their arbitration pleadings and they appointed a sole arbitrator (the “Arbitrator”). In 2021, the parties attended a lengthy arbitration hearing that they agreed would address questions of liability only. That initial hearing resulted in a partial final award of the Arbitrator dated October 20, 2021 (the “Award”). MDG’s claim alleging liability on the part of Mount Polley was wholly unsuccessful, while Mount Polley’s counterclaim against MDG was wholly successful.
In particular, the Arbitrator dismissed MDG’s claims for misrepresentation and breach of contract, including breach of its “good faith duty”, and for liens under the Builders Lien Act, S.B.C. 1997, c. 45. The Arbitrator found MDG liable to Mount Polley in damages for breach of contract due to overbilling, failing to complete the scope of work and misrepresentations. The Arbitrator summarized the material evidence of each witness and he made numerous findings throughout the Award.
MDG sought leave to appeal the Award pursuant to section 31 of the Arbitration Act, R.S.B.C. 1996, c. 55 (the “Act”) on the basis of errors of law. MDG also sought, pursuant to section 30 of the Act, to set aside the Award on the basis that the Arbitrator made an arbitral error by failing to observe the rules of natural justice (the “Petition”).
In seeking leave to appeal, MDG submits that the Arbitrator erred on numerous grounds. The Petition sets out the following alleged errors of law:
- failing to find Mount Polley liable for negligent misrepresentation by misapplying the duty of care analysis, misapplying the law regarding when an omission may constitute misrepresentation, and, failing to consider the element of reliance;
- failing to find Mount Polley liable for negligent misrepresentation by omission by failing to consider the elements of MDG’s negligent misrepresentation claim;
- failing to find Mount Polley liable for breach of its good faith contractual duty of honest performance by misapplying the test for breach of the duty of honest performance and failing to consider Mount Polley’s failure to disclose material information;
- failing to consider or misapprehending evidence relevant to MDG’s claims for negligent misrepresentation by omission and breach of duty of honest performance;
- in holding that MDG had overbilled Mount Polley and that Mount Polley had overpaid for MDG’s dredging services; and
- in holding MDG liable for negligent misrepresentation by mischaracterizing statements made by MDG as actionable misrepresentations.
MDG further alleged that the Arbitrator committed an arbitral error by failing to observe the rules of natural justice with respect to his summary conclusion that MDG owed a duty of care to Mount Polley when he failed to set out his “chain of reasoning to explain how the Arbitrator reached that conclusion”.
Mount Polley opposed MDG’s Petition mainly on the ground that MDG was unable to meet the threshold for leave to appeal. Mount Polley pointed out that MDG lost the arbitration on every factual and legal point that was in issue.
Justice McDonald held that identifying a question of law for appellate review is a threshold requirement for granting leave. A court must grant leave only when questions of law can be clearly perceived and delineated. Legal questions are questions “about what the correct legal test is“. Factual questions are “about what took place between the parties“. Questions of mixed fact and law are “about whether the facts satisfy the legal test” (i.e., the application of a legal standard to a set of facts): Teal Cedar Products Ltd. V. British Columbia, 2017 SCC 32, at para. 43; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 49; and Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748 at para. 35. Where the legal principle is not readily extricable, the matter remains one of “mixed fact and law” and will not meet the threshold requirement under the Act. Citing Chriscan Enterprises Ltd. v. St. Pierre, 2016 BCCA 442, Justice McDonald emphasized that for purposes of granting leave to appeal from an arbitral award, an error of law must be discernable “on the face of the award”.
Justice McDonald considered the errors alleged in two categories, the first relating to MDG’s claim of negligent representation, and the second relating to MDG’s claim of breach of the duty of honest performance to see whether MDG had identified a “clearly perceived and delineated” question of law, or, a rare extricable question of law.
She found in both categories that MDG did not meet the threshold. MDG raised questions of mixed fact and law. Essentially, it submitted that despite the Arbitrator making a correct statement regarding the law, it should have resulted in a different outcome on the issues of whether Mount Polley was liable for negligent misrepresentation or whether it breached the duty of honest performance. This conclusion was further supported by MDG’s focus on the particulars of the evidence that was before the Arbitrator.
Finally, Justice McDonald considered whether the Arbitrator committed an arbitral error due to his failure to follow the rules of natural justice pursuant to section 30(1) of the Act in not setting out his chain of reasoning for the conclusion that MDG owed a duty of care to Mount Polley. She rejected MDG’s argument and found that the Award contained ample detail regarding the Arbitrator’s findings, his consideration of the relevant authorities, and his reasoning for deciding that MDG was liable to Mount Polley for negligent misrepresentation, including with respect to the duty of care element. This was not a case where there was no reasoning provided regarding the application of the law to the dispute.
In the result, Justice McDonald dismissed the relief sought by MDG.
Contributor’s Note:
Courts continue to uphold the high bar for leave to appeal an arbitral award. This decision highlights that courts are live to the issue of strategic drafting designed to frame one or more issues as a legal question when it really requires an analysis of mixed fact and law. To be successful on an application for leave to appeal under the Act, a party must show that a legal test may have been altered in the course of its application (an extricable question of law) rather than that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a question of mixed fact and law).