In Magnum Management Inc. v Chilliwack Hangar Corp., 2024 BCCA 212 [Magnum Management], the Court dismissed an application for leave to appeal an arbitration award. The applicant sought leave on the basis that the arbitrator had failed to apply, or misapplied, the legal principle of issue estoppel, had misapprehended another arbitrator’s reasons in a prior arbitration involving the same contractual clauses, and had not anchored the award in either party’s submissions. The Court found that the applicant had failed to identify an extricable question of law under s. 59(3) of British Columbia’s Arbitration Act, SBC 2020, c. 2 [“Act”].
Background to dispute – Magnum Management Inc. (“Magnum”) rented premises from Chilliwack Hangar Corp. (“Chilliwack”) at the Chilliwack airport pursuant to a long-standing lease. Section 4.1(c) of the lease provided that during each five-year period of the term, the annual minimum rent would be reviewed and agreed upon or determined by way of arbitration, in which case the arbitrator was required to:
“… proceed to hear and determine the matter of such Minimum Rent in accordance with the provisions of the Commercial Arbitration Act of British Columbia, as amended from time to time, on the basis of rent payable with respect to similar premises in the area at that time, and on the basis that the Premises were unimproved and excluding the value of the Building.”
The 2018 Arbitration – The parties wereunable to agree on the minimum rent for the January 2018 to December 2022 time period, and so referred the dispute to an arbitrator (the “2018 Arbitration”). In the 2018 Arbitration, the arbitrator made findings about the proper interpretation of the terms “rent payable”, “similar premises”, “in the area”, and “at that time” in s. 4.1(c) of the lease. The arbitrator concluded, “… in my opinion s. 4.1 (c) of the Lease requires a consideration of current rents for similar properties in the area.”
In the 2018 Arbitration, the arbitrator set the minimum rent based on six comparable properties identified in Chilliwack’s expert report, although the arbitrator noted that he did not have any evidence to assist him in determining whether adjustments should be made for their specific locations, the date the rents were negotiated, or any other difference which might be relevant to their relative rental rates.
The 2023 Arbitration – The parties were, again, unable to agree on the minimum rent for the January 2023 to December 2027 time period, and referred the matter to an arbitrator (the “2023 Arbitration”).
In the 2023 Arbitration, the arbitrator found that issue estoppel applied to questions about the interpretation of terms in the lease, and that he was bound to the findings about the interpretation of s. 4.1(c) of the lease that had been made in the 2018 Arbitration.
Two of the arbitrator’s other findings became a focus of the application for leave to appeal. First, he found that “similar premises” was not necessarily restricted to the same six properties that had been identified as “similar premises” in the 2018 Arbitration. Second, his calculation of the minimum rent was based on the average rent of all properties presented to him which were “similar premises”, “in the area”, and “at that time,” when neither party had submitted that the rent should be calculated this way.
The application for leave to appeal – Magnum applied for leave to appeal the award arising from the 2023 Arbitration. The Court considered: (1) whether Magnum had identified a question of law; and (2) whether Magnum satisfied the requirements justifying leave to appeal under s. 59(4) of the Act.
Magnum submitted that three questions of law arose from the 2023 Arbitration award. First, it submitted that whether the arbitrator in the 2023 Arbitration had failed to apply, or erred in his application of, issue estoppel was a question of law. Magnum contended that, despite the arbitrator’s finding that he was bound by the contractual interpretation findings in the 2018 Arbitration, the arbitrator did not follow the interpretation of “similar premises” as found in the 2018 Arbitration award. This led the arbitrator to err by not giving preference to properties with more recently negotiated rental rates.
Second, Magnum submitted that the arbitrator had erred in law by failing to restrict his calculations to the same six comparable premises that had formed the basis of the award in the 2018 Arbitration. Magnum submitted that the arbitrator in the 2018 Arbitration had used those six premises because they were “more similar” to other premises and had more recently negotiated rental rates.
Third, Magnum submitted that the arbitrator’s calculation of the rental rate by using the average of all rents of comparable premises was an error of law because it was not anchored in the pleadings, submissions or arguments of either party, and by not seeking submissions from the parties on this point, the arbitrator denied the parties natural justice and procedural fairness.
The Court rejected these submissions.
In considering whether the application of issue estoppel raised a question of law, the Court considered Kingsgate Property Ltd. v. Vancouver School District No. 39, 2023 BCSC 560, aff’d 2024 BCCA 54 [Kingsgate]. In that case, an arbitration panel in 2022 had determined that it was not bound by findings of a prior arbitration panel in 1999 over the same terms of the lease, as the 1999 interpretation was unworkable and would frustrate the parties’ intentions. In brief, the clause at issue required market value to be determined based on “immediate use”, and to interpret the clause in the same way as it had n in 1999 was unworkable because none of the available uses were “immediate”. In Kingsgate, the British Columbia Supreme Court granted leave to appeal the tribunal’s award on a question of law, noting at paragraph 69:
“… [I]nterpreting an award and identifying issues to which issue estoppel applies can be analogized more readily to a question of statutory interpretation—which is a question of law—being the interpretation of legal text with binding force (an award) to determine the parties’ governing obligations under a legal doctrine.”
While questions of law generally have impact beyond the parties to a particular dispute (or more “precedential value”), the Court in Kingsgate found that the identification of issues to which issue estoppel applies is an exception to that rule, at paragraph 74:
“In my view, the interpretation of an arbitration award for purposes of identifying the issue to which issue estoppel relates—while a matter peculiar to the interests of the parties involved in the arbitration proceeding—is a further exception to that ‘precedential value’ general rule for identifying questions of law.”
The Court in Magnum Management declined to follow Kingsgate, finding that it was not analogous. Kingsgate involved a question of whether the arbitration panel erred in finding that issue estoppel did not apply. In the 2023 Arbitration, the arbitrator had accepted that issue estoppel applied and accepted the prior interpretation of the terms of the Lease. The only question was about how the arbitrator had applied that interpretation to the facts, which is a question of mixed fact and law.
The Court also found that the second question, whether it was an error not to apply the same six properties used in the 2018 Arbitration in the 2023 Arbitration, was a question of mixed fact and law, as it was a question of what facts apply to what legal test. The Court noted that the arbitrator in the 2023 Arbitration was not restricted to the same six properties that were identified to be “similar premises” “in the area” “at the time”, he was only bound to accept the previously-identified interpretation of those terms.
Finally, the Court noted that no issue of procedural unfairness or natural justice arose from the arbitrator’s calculation of rents by averaging. An arbitrator is not bound to choose between the positions advanced by the parties. In any event, any question of procedural unfairness must be advanced by way of a set-aside application, not as a ground for leave to appeal.
The Court also found that Magnum had not identified any of the circumstances justifying leave as required by section 59(4) of the Act.
As a result, the application for leave to appeal was dismissed.
Contributor’s Notes:
First, the Court’s findings illustrate how questions of issue estoppel may not always give rise to an extricable question of law. Whether the question is law, or mixed fact and law, depends on how the arbitrator treats questions of issue estoppel where prior arbitration decisions arise from the same agreement.
This is a helpful comparison with the findings in Kingsgate (which wascovered in the earlier Arbitration Matters Case Note # 741 – Issue estoppel may bind tribunal to prior arbitration award). The background to Kingsgate seems very similar to Magnum Management: parties to a long-standing lease disputed the interpretation of a minimum rent clause which had also been decided in a prior arbitration. However, in Kingsgate, the issue was whether the arbitration panel had erred by exercising its discretion not to apply issue estoppel because the interpretation of the lease in 1999 was unworkable in 2022.
That is a different question than in Magnum Management, where the arbitrator accepted that issue estoppel applied and found that he was bound to the findings made in the 2018 Arbitration regarding the interpretation of the terms of the lease. It wasn’t a question of what legal principles applied, but of how they had been applied to the facts.
This case is a reminder that issue estoppel does not necessarily raise a question of law.
Second, another interesting takeaway in this case is how the Court dealt with the arbitrator’s calculation of the minimum rent, based on the average of all comparable properties, which was not raised in the submissions of the parties. The Court dealt with this issue very briefly, stating simply at paragraph 54 that “an arbitrator is not bound to choose between the positions advanced by the parties” without further analysis. It is important to note that the arbitrator had not identified a new issue not otherwise raise by the parties, but rather had calculated the relief using a methodology not raised by the parties, and so this was not a question of jurisdiction. It would have been helpful for the Court to expand on how this was distinct from a jurisdictional question, and why the arbitrator’s approach was not an error.
Finally, this decision highlights a timing and forum issue. The Court directed that issues of procedural fairness or natural justice can only be addressed by way of a set-aside application. An application to set aside an arbitral award must be brought within 30 days after the party receives the award, and must be brought to the Supreme Court of British Columbia under s. 60 of the Act, while leave to appeal applications are brought to the Court of Appeal. The applicant would have had to raise this argument in a different court, and if it wanted to pursue this line of argument, it would be out of time. This highlights the importance of challenging an arbitral award in the right manner, and in the right court, the first time.