B.C. – “Lacuna” identified in B.C.’s domestic arbitration scheme? – #811

In Bollhorn v. Lakehouse Custom Homes Ltd., 2023 BCCA 444, One justice of the Court of Appeal for British Columbia referred an application for leave to appeal from the decision of an arbitrator to a full panel of that Court. The Court identified what it termed “a gap [in the legislative scheme] that may confound the general understanding of ‘where there is a right, there is a remedy’”. That gap arises from the apparent application of the Vancouver International Arbitration Centre [“VanIAC”] expedited arbitration rules to claims under $250,000, which preclude appeals unless the parties agree otherwise. 

Background – The appellant, Mr. Bollhorn, entered into a contract with the respondent, Lakehouse Custom Homes Ltd. [“Lakehouse”] for the construction and purchase of a home. The contract provided building specifications. It also provided Mr. Bollhorn with a right to a walk‑through inspection no later than seven days before completing the sale, followed by the preparation of a deficiency list. It also included the following arbitration agreement: 

Any dispute concerning the identification and pricing of deficiencies, the rectification of the deficiencies, and release of holdback will be settled by arbitration under the British Columbia Arbitration Act at the expense of the Seller.”

The construction process gave rise to several change orders. The parties disputed the mark up Lakehouse was entitled to receive for this additional work. Shortly before completing construction, Lakehouse stated it was not bound to sell Mr. Bollhorn the property. 

Mr. Bollhorn brought proceedings before the B.C. courts seeking specific performance of the construction and purchase agreement. In that proceeding, the parties joined issue on the adequacy of damages as well as the appropriate price for the change orders. The Court granted specific performance.

Thereafter, Mr. Bollhorn exercised his right to conduct a walk-through to identify and list any deficiencies in accordance with the contract. He identified several. Lakehouse did not rectify the deficiencies to Mr. Bollhorn’s satisfaction.

The Arbitration – Pursuant to the arbitration agreement in the parties’ contract, Mr. Bollhorn commenced arbitration by serving a Notice to Arbitrate on Lakehouse. He sought a determination validating his identification of the deficiencies, quantification of the costs he would incur to remedy them, and an order for payment of those costs. In addition to serving Lakehouse, Mr. Bollhorn also served the Notice to Arbitrate on VanIAC. He indicated on the cover page that he did so in accordance with Rule 5 of the VanIAC domestic arbitration rules, the provision stating how to commence arbitration under the Rules. 

VanIAC appointed an arbitrator, who did not address Mr. Bollhorn’s claims on the merits. Instead, he ruled that Mr. Bollhorn’s claims in the arbitration were res judicata. He stated that Mr. Bollhorn’s arbitral claim concerned “all the claims put forward by [Mr. Bollhorn] in his notice of civil claim, which included a claim for damages against the respondent for failing to complete the construction of the home in accordance with the contract”.

Decision – Mr. Bollhorn sought leave to appeal the arbitrator’s decision, alleging he made an error of law in applying res judicata to Mr. Bollhorn’s arbitral claim. Lakehouse opposed the application for leave to appeal based in part on “British Columbia’s domestic arbitration scheme”. The Court noted that under B.C.’s relatively recent Arbitration Act, SBC 2020 [the “Act”], and its regulations, VanIAC is designated as the appointing authority. It also observed that VanIAC has promulgated rules for domestic arbitrations, and that the VanIAC “Expedited Procedures” (Part B of the VanIAC Rules) applied in this case since the dispute’s value was under $250,000. Rule 27 bars appeals unless the parties otherwise consent. Therefore, the position that Mr. Bollhorn could not seek leave to appeal had “considerable force”.

The Court also found “considerable force” in Mr. Bollhorn’s argument that the arbitrator erred in law, not the least because, at the time of the previous Court proceeding, Mr. Bollhorn had yet to complete the walk-through and identify the deficiencies at issue in the arbitration. 

In responding to Lakehouse’s argument, Mr. Bollhorn relied on “Part D” of the VanIAC Rules, entitled “Optional Arbitration Appeal Rules”. Those provisions set out the procedure for appeals from an award to a second-level arbitral tribunal. As the Court noted, the arbitration appeal provisions only apply when the parties agree, either in their agreement or after the fact. In this case, they had not. Despite this, Mr. Bollhorn argued that Rule 27, read in light of Part D, permitted him to seek leave of the Court to appeal the arbitrator’s decision on a question of law. 

After the hearing, the Court sought supplementary submissions on whether the arbitrator’s decision was an “award”. The Court stated that the parties’ submissions identified a lacuna in B.C.’s arbitration regime: 

[22] The parties, through their submissions, have revealed a lacuna in this domestic arbitration scheme, and it is a gap that may confound the general understanding of “where there is a right, there is a remedy”. The circumstances show that in the event Mr. Bollhorn is correct that the application of res judicata was an error of law, and Lakehouse is correct that the decision cannot be appealed, Mr. Bollhorn’s claim under his contract will not have been heard on its merits, contrary to the expectation implicit in the contract’s arbitration clause. Further, in that event, depending on whether the decision is an “award”, no other forum may be available to him because the contract assigns this dispute exclusively to arbitration.”

On this basis, the Court referred the question of Mr. Bollhorn’s right to appeal to a panel of three judges of the Court of Appeal.

Contributor’s Notes

First, although the question has been deferred to a division of the Court of Appeal, it appears the arbitrator’s decision to dismiss Mr. Bollhorn’s arbitral claim should be characterized as an “award” for the purposes of the Act and VanIAC Rules.

As Brian Casey explains, an award is a decision that “disposes of all or part of a legal dispute, or the lis, between the parties”; it determines “a substantive right, either on an interim or final basis” [J. Brian Casey, Arbitration Law of Canada, 3rd ed. (Juris, 2017), p. 433 and 435]. The Arbitrator’s decision that Mr. Bollhorn’s claim was res judicata finally disposed of the entire dispute between the parties. That it did so without deciding the claim on the merits does not diminish the decision’s finality, or the fact that it purports to extinguish Mr. Bollhorn’s claim once and for all.

The Act further supports this interpretation. Like other Canadian arbitration statutes, it does not define “award”. However, section 49, titled “partial awards”, reads: “[a]n arbitral tribunal may make an arbitral award finally deciding a matter in dispute while retaining jurisdiction to decide another matter in dispute”. From this we can infer that, under the Act, an “award” is a decision that “finally decid[es] a matter in dispute”. Again, the arbitrator’s res judicata finding does just that. 

Second, the Court (and the parties) proceeded on the basis that the VanIAC Rules, and thus the prohibition against appeals (Rule 27), applied. But query whether the VanIAC Rules were ever intended to apply to this arbitration at all. 

Under the Act, an arbitration agreement is deemed to include any arbitration rules incorporated by reference [s. 5(3)]. If the Court’s reasons reproduced the arbitration agreement in full, the parties did not incorporate the VanIAC Rules, or any other arbitration rules for that matter. If not, then the VanIAC Rules’ prohibition against appeals does not apply. Instead, the Act’s default regime would govern; Mr. Bollhorn would be entitled to seek leave to appeal under subsections 59(3) and (4)

The question then becomes: why did Mr. Bollhorn send his notice to arbitrate to VanIAC, stating he was doing so in accordance with Rule 5 of the VanIAC Rules? Although the Act [s. 67] and its regulations designate VanIAC as the default appointing authority for domestic arbitration in B.C., this does not mean VanIAC automatically administers those arbitrations, or that the VanIAC Rules automatically apply to them. Did Mr. Bollhorn simply intend for VanIAC to discharge its appointing authority role? If so, his reference to VanIAC Rule 5 (Process for Commencement) likely threw everyone for a loop.

Indeed, VanIAC Rule 2(b) says those rules apply to all arbitrations “commenced through the Centre on or after September 1, 2020”. Rightly or wrongly, Mr. Bollhorn appears to have commenced his arbitration through VanIAC. Evidently Lakehouse agreed to this given its reliance on VanIAC Rule 27 as an argument to preclude Mr. Bollhorn’s appeal. The parties were of course free to agree upon the VanIAC Rules’ application after the dispute arose. Maybe that is what they did here, but the Court’s reasons leave this a bit of a mystery.Third, Mr. Bollhorn’s argument that his ability to appeal to the Court based on Part D of the VanIAC Rules is somewhat curious. Part D sets out the rules concerning an appeal of an arbitral award to a second-level arbitral tribunal, not the Court. The appeal provisions do preserve the right to appeal to the Court under the Act [VanIAC Rule 32(a) and (b)]. However, those provisions do not create a right of appeal where it does not otherwise exist. In other words, if Part B of the VanIAC Rules (the expedited procedures) applies, then its Rule 27, which ousts any right of appeal to the Court, applies independently of anything in Part D. Perhaps more importantly, the Court noted that the parties did not agree to the optional arbitration appeal provisions. If not, Part D is not engaged in the first place.