B.C. – proper sequence for leave to appeal analysis applied to reverse result of appeal – #142

In Richmont Mines Inc. v. Teck Resources Limited, 2018 BCCA 452, the B.C. Court of Appeal reversed an applications judge’s decision granting leave to appeal an arbitral award on a question of law due to the judge’s failure to follow the analytical framework established by Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53 and Teal Cedar Products Ltd. v. British Columbia, [2017] 1 SCR 688, 2017 SCC 32.  The Court determined that the judge had reversed the analysis when he first determined the substantive issue of the correctness of the arbitrator’s decision and then, having agreed with the applicant, held that the applicant had identified an extricable question of law to appeal. By reversing the analysis back to its correct sequence, the Court reversed the result and refused leave to appeal.  The Court also concluded its reasons with references to broad observations about the different approaches courts take to appeals of arbitral awards and trial decisions.

Teck Resources Limited (“Teck”) is the successor in interest to a 2% royalty over gold produced from certain mineral claims owned by Richmont Mines Inc. (“Richmont”) as the successor in interest to those mineral claims. The parties disputed whether the royalty applied to 100% of the gold produced from four (4) patented mineral claims on two (2) parcels of land or to only 69%. Teck argued that its royalty applied to 100% while Richmont argued for 69%. Bound by arbitration, Teck and Richmont submitted their dispute to arbitration and the arbitrator agreed with Teck.

Richmont applied for leave to appeal the award under section 31(1) of B.C.’s Arbitration Act, RSBC 1996, c 55.  It argued that the arbitrator had made two (2) errors when he:

(i) failed to interpret the words of the definitional provision for “Property” in the contract based on their plain and ordinary meaning and consistently with the entirety of the contract; and,
(ii) ignored of evidence to interpret the defined term “Property”.

The applications judge agreed with Richmont and Teck appealed the judge’s order. Teck argued that the judge erred in law to grant leave when he:

(i) identified an extricable question of law where none existed;
(ii) substituted his interpretation of the impugned provision for the arbitrator’s;
(iii) failed to give effect to the arbitrator’s factual findings; and,
(iv) applied the wrong standard of review to determine if Richmont’s proposed appeal had arguable merit.

The Court of Appeal acknowledged that the analytical framework underpinning section 31 of B.C.’s Arbitration Act had been articulated by Sattva Capital Corp. v. Creston Moly Corp. and confirmed and clarified by Teal Cedar Products Ltd. v. British Columbia.  Section 31 limited a court’s intervention to questions of law and gave no jurisdiction to grant leave to review findings of fact or mixed fact and law even if the findings may be erroneous. The Court reminded that the two Supreme Court decisions “also explain that the task of the application judge is to determine whether the criteria in ss. 31(1) and (2) have been met, not to adjudicate the merits of the substantive issues.

The Court detailed Sattva Capital Corp. v. Creston Moly Corp.’s and Teal Cedar Products Ltd. v. British Columbia’s development of the analytical framework and provided extensive excerpts of the Supreme Court’s reasoning. The Supreme Court in Teal Cedar Products Ltd. v. British Columbia sought to identify how close the right and the wrong approaches were:

[45] … A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings. Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question)..

[59] … The identification of an alleged legal error should be based on the arbitrator’s application of the wrong test, not on the fact that one would have applied the appropriate legal test differently. Otherwise, it does not raise a legal question conferring jurisdiction on the courts to review the arbitration award; rather, it skips the jurisdiction stage and immediately proceeds with a review of the arbitrator’s analysis of a mixed question.

Having set the framework, the Court then examined the facts of Richmont’s and Teck’s dispute at paras 17-41 and the arbitrator’s findings at paras 42-49. The application’s judge’s reasons are summarized at paras 52-54 and then, on appeal, each of the parties’ respective arguments are presented at paras 55-58.

The Court observed that a decision taken by a judge on a leave to appeal application is a question of law and therefore attracts the correctness standard, relying on Housen v. Nikolaisen, [2002] 2 SCR 235, 2002 SCC 33, para. 8.  This standard frees an appellate court to replace the opinion of the judge in first instance with its own when it handles a question of law.

The Court then proceeded to consider the merits of Richmont’s application for leave, applying the correct analytical framework. It considered whether the issues raised by Richmont amounted to extricable questions of law and, if they did, whether there was arguable merit that the arbitrator’s findings with respect to those questions were unreasonable.

The Court drew a bright line in the case law between pre- and post- Sattva Capital Corp. v. Creston Moly Corp. regarding the courts’ approach to questions of mixed fact and law and extricable questions of law. Two (2) distinguishing factors identified by the Court are: (a) the precedential value of certain questions; and, (b) whether the initial decision maker considered the appropriate test.

(a) precedential value – The interpretation of standard form contracts “in wide use within an industry” are questions of law and the Court gave a series of examples wherein the initial decision maker is a judge: Precision Plating Ltd. v. Axa Pacific Insurance Company, 2015 BCCA 277; True Construction Ltd. v. Kamloops (City), 2016 BCCA 173 para. 34; Sherry v. CIBC Mortgages Inc., 2016 BCCA 240 para. 76; Hadley Estate (Re), 2017 BCCA 311 paras 31–32; Cellular Baby Cell Phones Accessories Specialist Ltd. v. Fido Solutions Inc., 2017 BCCA 50 para. 48; Wynward Insurance Group v. MS Developments Inc., 2016 BCCA 513 para. 16; and Coast Capital Savings Credit Union v. Liberty International Underwriters, 2017 BCCA 362 paras 28–35.

As well, a similar approach applies when there is “no meaningful factual matrix that is specific to the parties to assist the interpretation process”: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 para. 24; and, MacDonald v. Chicago Title Insurance Co. of Canada, 2015 ONCA 842.

The Court held that the error identified by Richmont had no precedential value beyond the parties to the dispute.

(b) appropriate test – So long as the decision maker has applied the appropriate test, the resulting decision can give rise only to question of mixed fact and law. The Court considered Ryan Mortgage Income Fund Inc. v. Alpine Credits Limited, 2017 BCCA 206 in which the appellant unsuccessfully argued that the judge had “failed to take into account” part of the contract in issue. In that case, the Court had disagreed, observing that not only did the judge not ignore the provision but “expressly addressed it”. Following that treatment of an alleged error based on ignoring a provision of a contract, the Court at para. 70 detailed the arbitrator’s reasoning and came to similar conclusions as in Ryan Mortgage Income Fund Inc. v. Alpine Credits Limited.

[71] In my view, the arbitrator did not ignore the opening words of Recital B. He clearly turned his mind to them. He had regard to the factual matrix of the Goudreau Agreement. He was also alive to the issue of whether his interpretation of the agreement would accord with “sound commercial principles and good business sense”; he rejected Richmont’s submission that Teck’s interpretation of the agreement “does not accord with commercial reality … since it creates for Teck an unintended windfall”.

The Court concluded that “at best”, the divergence in approaches between the arbitrator and Richmont was a question of mixed fact and law, not a pure question of law. As a result, the alleged error could not be “extricated from the factual matrix of the case” and the Court had no jurisdiction to grant leave to appeal the award on the issue raised by Richmont.

A second reproach by Richmont centred on the arbitrator’s failure to directly address key evidence regarding how a certain document had been registered with a government office. Richmont argued that the omission qualified as an error of law if a fact-finder forgets, ignores or misconceives evidence in a way that affects the conclusion, relying on Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., [2011] 2 SCR 175, 2011 SCC 23 para. 71.  The Court recognized that it too had accepted this same approach, pointing to the application of the same rule in Armstrong v. Armstrong, 2012 BCCA 166 and Photon Control Inc. v. Kidder, 2012 BCCA 327.  That said, the Court did not agree that the reasoning applied to the facts of the case before it. Even if the arbitrator had ignored the evidence signaled by Richmont, doing so did not affect his decision in a material way. The Court held that the failure to discuss the evidence did not lead the arbitrator into error and, had it, the error was of mixed fact and law and not a question of law alone.

The decision closes with a reminder that the parties are held to the process they chose and that part of that process was its “efficiency and finality”. The Court reserved the last paragraphs of its reasons for a reference to its 2015 decision in Boxer Capital Corporation v. JEL Investments Ltd., 2015 BCCA 24 paras 4 and 6 in which the Court spoke to a different approach reserved for appeals of arbitral awards as opposed to trial decisions.

[4] This appeal serves as a reminder of the importance of judicial restraint in the review of arbitral awards, at least in the commercial context. When sitting on appeal from an arbitral award, a court’s jurisdiction is narrow. The inquiry differs fundamentally from a trial, and even from a judicial review of an administrative decision.

[6] Parties are afforded such narrow scope to appeal arbitral awards because arbitration is intended to be “an alternate dispute mechanism” rather than “one more layer of litigation” (BCIT (Student Association) v. BCIT, 2000 BCCA 496 (CanLII) at para. 14, per Madam Justice Saunders, emphasis added).

The closing citation from para. 6 of Boxer Capital Corporation v. JEL Investments Ltd. refers to the 2002 decision of the Court of Appeal in BCIT (Student Association) v. BCIT, 2000 BCCA 496 as a touchstone for the approach that arbitration is not “one more layer of litigation”. That decision explored the scope of discretion on leave applications and rejected the addition of “obviously wrong” as an independent, higher standard when granting leave to appeal.

[14] It is well accepted that one objective of the new Act was to foster arbitration as an alternate dispute mechanism by, amongst other measures, discouraging appeals of arbitration awards to courts. There has been a sense that under the old Act, arbitration was infrequently utilized because it was seen as merely adding one more layer of litigation to the court process of trial and appeal. On this thinking one could argue that a stringent test for leave to appeal would foster arbitration by keeping it far from court review. In answer, one may observe that so long as access to the courts is given for questions of law arising from arbitration awards, whether screened by a leave process or not, litigation in the courts by parties dissatisfied with an award is inevitable and is provided for by the legislation. Further, where, as now, the test compels full argument of the appeal on the leave application, the courts are bound to be engaged fully in the merits of the decision once a dissatisfied party engages the court process. While it may be argued that the imposition of an onerous burden on the leave application discourages applications for leave, this case demonstrates that such a high standard will not discourage all litigants, even when the “obviously wrong” test clearly cannot be met by the applicant.

As its final statement, the Court pointed to the policy of deference asserted by the Supreme Court in Heritage Capital Corp. v. Equitable Trust Co., [2016] 1 SCR 306, 2016 SCC 19.  In doing so, the Court signalled that it accepted extending the same deference with equal force to arbitral awards.

[21] … In this context, deference to fact finders furthers the goals of limiting the number, length and cost of appeals, and of promoting the autonomy and integrity of trial proceedings. These principles weigh in favour of showing deference to first-instance decision makers on points of contractual interpretation, and treating contractual interpretation as a question of mixed fact and law (Sattva, at paras. 50‒52).

The Court allowed the appeal and set aside the judge’s order granting leave to appeal on the issues raised by Richmont.