In SG Ceresco Inc. v. BroadGrain Commodities Inc., 2018 MBQB 120, Madam Justice Canace Grammond sent several, distinctive messages to parties applying for leave to appeal under section 44(2) of Manitoba’s The Arbitration Act, CCSM c A120. The messages speak to parties who fail or forget to adjust the pre-established procedural rules they adopt, who do not raise valid arguments earlier before the arbitration tribunal or who apply to the court without sufficient evidence in support of issues raised. Her messages also address the proof and effect of standard form contracts, allegations of a reasonable apprehension of bias and the need to demonstrate the alleged importance to the parties of an issue.
SG Ceresco Inc. (“Ceresco”) and BroadGrain Commodities Inc. (“BroadGrain”) entered into a February 8, 2013 contract for the purchase of $684,649.00 USD of soybeans (the “Contract”). BroadGrain sourced the soybeans from Prograin Inc., a third party. Ceresco paid BroadGrain’s initial invoices but, further to information received by Ceresco after shipment and partial payment, disputed the quality of the first shipment. Additional inspections of subsequent shipments yielded the same results. Ceresco and BroadGrain exchanged positions on the issue of quality and inspection but did not resolve their dispute, leaving BroadGrain’s final May 31, 2013 invoice unpaid.
The Contract provided that any disputes relative to the purchase would be resolved by arbitration through the Canadian Special Crops Association (“CSCA”), a national industry association for pulse crops and special crop growers. The CSCA provides a comprehensive set of arbitration rules, including internal appeals, (“Rules”) which Ceresco and BroadGrain agreed in their Contract to use. The Rules form Part B of a two (2) part publication issued by the CSCA, the first, Part A, being the CSCA’s Trade Rules.
BroadGrain initiated arbitration against Ceresco. First, by August 12, 2014 award, a three (3) member arbitration tribunal, called an “Arbitration Committee” under the Rules, determined that Ceresco was entitled to compensation in the amount of $265,000.00 USD for the losses stemming from the BroadGrain’s breaches of the Contract. Second, BroadGrain appealed under the Rules to a five (5) member arbitration tribunal created by the Rules, called the “Board of Appeal”. The latter set aside the Arbitration Committee’s award and, by award dated January 20, 2016 (the “Award”), ordered Ceresco to pay BroadGrain’s final invoice in the amount of $137,000.00 USD.
(Note: the Rules’ own mentions of “Board of Appeal” and “Board of Appeals” is inconsistent. Rules 11.1, 11.2 and 12.1 mention Board of “Appeals” while 12.2, 12.3 and 13.1 mention Board of “Appeal”. For consistency, to follow Grammond J., this note includes the ‘s’.)
Ceresco applied to the Manitoba Court of Queen’s Bench under section 44(2) of Manitoba’s Arbitration Act for leave to appeal the Board of Appeals’ Award. Though Ceresco’s and BroadGrain’s dispute had passed through two (2) levels of arbitration, the parties and Grammond J. focused their leave to appeal analysis on the Board of Appeals’ award.
A key issue in the appeal to the Queen’s Bench was that Ceresco had disputed BroadGrain’s right to arbitrate under the Rules and the jurisdiction of the Arbitration Committee. As a result, Ceresco did not file its own Statement of Claim against BroadGrain under Rule 3.1. It did eventually file a Statement of Counter Claim under Rule 6.4.
Grammond J.’s reasons reproduce key sections of the Rules applicable to the leave sought by Ceresco and decisions taken by the Arbitration Committee and the Board of Appeals. Rule 3.1 provides a 180 day delay from the completion of the contract in which to file a Statement of Claim. Rule 6.4 sets a 25 day delay for Ceresco as Respondent to file a document entitled “Statement of Counter Claim”, calculated from receipt of BroadGrain’s Statement of Claim. Despite the title, the document entitled “Statement of Counter Claim” must contain a Respondent’s defence:
“1) A clear and concise statement of any claim the Respondent has against the Claimant related to the matter in dispute.
2) A clear and concise statement of the facts which support the Respondent’s claim and/or refute the claim of the Claimant. All supporting documents and evidence intended to be entered before the Arbitrators are to be included.
3) Any Claim by the Respondent.”
Ceresco did eventually file a document bearing that title and containing the facts on which Ceresco resisted BroadGrain’s claim. A significant issue then arose given how Rule 3.1 and Rule 16.5 prevent the Arbitration Committee from extending delays:
Rule 3. 1 “A Statement of Claim in connection with a matter for arbitration must be filed with the Association within One hundred-eighty (180) Calendar days after the applicable contract completion, performance date or default. The contract completion date shall be deemed to be the date of final delivery under the contract, or the payment due date whichever shall be latest. This time limit will not be extended or altered in any way.”
Rule 16.5 “The time limits specified in these provisions are to be strictly adhered to by all parties to ensure a prompt resolution of the disputes. With the exception of the time limit defined in 3.1, if any time limit is not met then, subject to the discretion of the Board of Appeals, the claim, response, action, submission, document or other matter shall be disallowed.”
With that background in mind, the key findings of the Arbitration Committee and then those of the Board of Appeals are set out in Grammond J.’s reasons. The interpretation of the delays in the Rules and the Arbitration Committee’s ability to extend those delays played a decisive role in Ceresco’s ability to defend BroadGrain’s claim and to set up its own Counter Claim.
First, the Arbitration Committee held:
– it had jurisdiction over the dispute;
– Ceresco’s late filing of its Counter Claim was CSCA’s responsibility;
– Ceresco must pay BroadGrain’s final invoice, plus interest; and,
– BroadGrain must pay Ceresco two-thirds of the invoices rendered, reduced from the full amount due to Ceresco’s failure to communicate its full claim to BroadGrain in a timely way. Ceresco was entitled to compensation because the soybeans quality fell below the Contract specifications, and the soybeans were not sampled by an independent surveyor before shipment, in breach of BroadGrain’s responsibilities.
Second, under the appeal provisions of the Rules, the Board of Appeals determined that the standard of review to apply was reasonableness. It held that the Arbitration Committee’s award was unreasonable, reversed much of the Arbitration Committee’s determinations and held:
– Ceresco did not file a Statement of Claim under Arbitration Rule 3.1 within the delay, time limit could not be altered in any way, including under Rule 16.5;
– the Arbitration Committee had no discretion to extend the delay within which Ceresco could file a Statement of Counter Claim under either Rule 6.4, or under the Arbitration Act, resulting in Ceresco’s Statement of Counter Claim being late and time-barred;
– the Arbitration Committee’s reasons, relative to timelines under the Rules, “lacked any clear reasoning and did not meet the standard of reasonableness relative to justification, transparency and intelligibility” such that the Board of Appeals was “not satisfied that the result was within the range of reasonable outcomes”; and
– the remaining substantive issues raised on the appeal were moot in light of Ceresco’s Statement of Counter Claim being time-barred, and the Arbitration Committee should not have considered those issues.
At paragraphs 12-26, Grammond J. considered the relevant principles and statutory provisions for appeal awards and evaluated the difference between Manitoba’s Arbitration Act and B.C.’s Arbitration Act, RSBC 1996, c 55. She concluded that B.C.’s leave to appeal provisions were broader in scope and that Manitoba’s were narrower. Despite the wording in the Manitoba legislation, she considered that she had residual discretion to grant or deny leave.
At paragraphs 27-37, she reviewed the now-familiar tests in Teal Cedar Products Ltd. v. British Columbia,  1 SCR 688, 2017 SCC 32 and Sattva Capital Corp. v. Creston Moly Corp.,  2 SCR 633, 2014 SCC 53 for the applicable legal tests and whether some of the issues raised questions of law or not and, if so, the applicable standard of review.
She introduced her consideration of Ceresco’s and BroadGrain’s arguments by noting that section 44(2) of the Arbitration Act, combined with Manitoba Teachers’ Society v. North, 2005 MBQB 292 which added that appellant’s argument on a question of law must have “arguable merit, or in other words, a reasonable prospect of success”, established four (4) factors for the applicable test for leave:
1. a question of law;
2. the importance to the parties of the matters at stake justify an appeal;
3. the determination of the question of law will significantly affect the parties’ rights; and,
4. whether Ceresco has an arguable case that the Board of Appeal erred in law.
Grammond J. held at paragraphs 56-57 that Ceresco had not raised a question of law regarding the Board of Appeals’ interpretation of the Rules but did raise questions of law regarding the applicability of sections 5 and 14 of Manitoba’s The Limitation of Actions Act, CCSM c L150, (“Limitations Act”) and reasonable apprehension of bias.
(1) New grounds on appeal – Grammond J.’s reasons clearly accepts the importance of some of Ceresco’s arguments but faults Ceresco for not first and clearly raising those arguments before the Board of Appeals. Ceresco’s silence or reserve before the Board of Appeals obliged Grammond J. to conclude that Ceresco’s otherwise valid arguments raised “new” issues. The result was that such issues were subject to an additional threshold to cross, namely could Ceresco on appeal raise “new” issues.
Wolfe et al v. Taylor et al; Fat Cat Farms Ltd et al v. Wolfe et al, 2017 MBCA 74, para. 63, Banville & Jones Wine Co. Inc. et al. v. Manitoba Liquor Control Commission, 2010 MBQB 23, para. 95, and Alberta (Minister of Infrastructure) v. Nilsson, 2002 ABCA 283, para. 175 set out the threshold for allowing a party to raise new issues on appeal to the court. Those cases respectively confirmed that, “generally“, new issues raised for the first time on appeal will not be heard, that permission to do so will not be granted lightly, limited to “rare and extraordinary cases” and that the burden on the party seeking to raise a new issue is “substantial”.
(2) Ceresco’s Defence separate from Counter Claim – Grammond J. determined that neither the Arbitration Committee nor the Board of Appeals distinguished between Ceresco’s defence and Counter Claim. The record included no reference to such a distinction or that Ceresco’s submissions before either the Arbitration Committee or the Board of Appeals made such a distinction. She concluded that the “notion of separating Ceresco’s defences and counterclaim is a new issue that was not articulated before either”.
Grammond J. clearly acknowledged at paragraph 91 that the Rules expressly allowed for the defence to be folded into the Counter Claim:
“ Having said that, Arbitration Rule 6.4 clearly contemplates that a party’s defence would be set out in the same document as its counterclaim, under the broad label of “Counter Claim”. It appears, then, that in this case all parties understood, or ought to have understood, that disallowing the “Counter Claim” would have the effect of striking out Ceresco’s defences also, in the absence of any argument by Ceresco to the contrary. There is no other logical conclusion to be drawn.”
She readily agreed that Ceresco established an arguable case that the Board of Appeals’ interpretation of the Rules was unreasonable. However, she also held that, because Ceresco could have but did not raise the issue earlier, Grammond J. ruled at paragraph 92 that Ceresco could not pursue that issue on appeal. Grammond J.’s reasons serves as a bright alert to arbitration practitioners to ensure they voice key arguments in first instance and not save them for the court.
“ It was open to Ceresco to make the argument before the Board that its defences to BroadGrain’s claim, including any set-off, should be treated differently than its claim for damages against BroadGrain. Nevertheless, it did not make that argument, and it has provided no evidence as to why it did not do so. In addition, Ceresco has not proven that no satisfactory answer to its argument could have been given by BroadGrain. In the result, the requirements that must be met to raise a new issue on appeal have not been satisfied, and I would not permit this new issue to be pursued on appeal.”
(3) Limitations Act – Section 51(1) of Manitoba’s Limitation Act stipulates that it applies to arbitration but section 3 of Manitoba’s Arbitration Act allows parties to an arbitration agreement to vary or exclude expressly or by implication, any provision of the Arbitration Act aside from those few provisions listed in section 3(a) – (g). Rule 2.1 of the Rules, adopted by Ceresco and BroadGrain, applied the Arbitration Act to every arbitration and appeal unless the provisions of the Arbitration Act were expressly modified by or were inconsistent with the Rules. Grammond J. agreed that the Board of Appeals’ reasoning on Rule 3.1 and Rule 16.5 raised a valid question of law, even on a reasonableness standard but, at paragraphs 83-93, having considered the matter, refused to add Ceresco’s arguments on the application of the Limitation Act. She determined that the facts necessary to support Ceresco’s argument (the role of alleged fraud in concealing the lack of an independent survey of the soybeans) were not in the record and had not been raised by Ceresco earlier.
(4) Reasonable apprehension of bias – By September 16, 2015, BroadGrain wrote to the CSCA and the Board of Appeals. The following four (4) allegations from that letter appear in the reasons at paragraph 53.
“a) [The writer] wanted to provide some general context around BroadGrain’s continued pursuit of the matter and the importance of this case’s implication of the CSCA as an organization and the integrity of the CSCA rules as a frame work for stabling trade contracts.
. . .
b) [O]ur pursuit of this matter is routed in principal and concern for the CSCA, as well as a desire to understand the integrity of the CSCA rules in order to determine if BroadGrain will continue to contract under this legal framework.
. . .
c) [T]here are serious flaws in the system and, based on our observations, that the industry cannot confidently trade under CSCA rules if the Ruling is upheld.
. . .
d) Failure to overturn this Ruling and reject SG Ceresco’s time-barred counterclaim … will put into doubt the functionality of CSCA’s rules and its arbitration process. Should this happen, BroadGrain, and surely others in the industry who gain knowledge of this case, will be forced to cease using CSCA rules for contracting purposes.”
On appeal to the court, Ceresco raised the issue of a reasonable apprehension of bias.
“ Ceresco argued that BroadGrain threatened to cease using the Arbitration Rules for contracting purposes if the outcome of the appeal was not favourable to it, and that the Board of Appeals should disregard the letter and rebuke BroadGrain for its threats. The Board of Appeals noted Ceresco’s submissions, and stated that it would not go into detail about the contents of the letter because it did not form part of BroadGrain’s submissions and was not presented as evidence at the arbitration.”
Grammond J. accepted that Ceresco’s argument was a question of law, thereby making it eligible for her to consider whether or not to grant leave. Referring to Smith v. Brockton (Municipality), 2016 ONSC 6781, para. 33, Grammond J. introduced her analysis by remarking that an allegation of a reasonable apprehension of bias is serious and the threshold of proof is high. She adopted the standard set in Wewaykum Indian Band v. Canada,  2 SCR 259, 2003 SCC 45, para. 60 as the applicable test, namely whether an informed, reasonable person would think that the decision maker would not decide fairly, either consciously or unconsciously. As with Ceresco’s argument regarding the Board of Appeals’ interpretation of the Rules, Grammond J. acknowledged that Ceresco raised a potential for a reasonable apprehension of bias. As with Ceresco’s other, valid argument, it had failed to raise it earlier or provide adequate facts supporting it, leading Grammond J. to rule that it would not be considered despite the potential.
“ BroadGrain argued that Ceresco did not make this allegation in its responding appeal factum before the Board, such that it is a new issue. Certainly, the letter was before the Board of Appeals, and it heard submissions on the letter. Ceresco did not allege, however, bias on the part of the Board of Appeals, and more specifically, it did not call in to question the personal integrity of the Board members in hearing and deciding the appeal. Accordingly, this is a new issue, and the stringent requirements that must be met to raise a new issue on appeal have not been satisfied. Again, Ceresco has not shown that all of the facts relevant to this new argument are before the Court, and that no satisfactory answer to the argument could have been put forward by BroadGrain if the issue was raised previously.
 I accept that in this case, there was potential for bias, given that BroadGrain was a member of the CSCA threatening to withdraw its use of the Arbitration Rules, whereas Ceresco was not a member. The decision of the Board, in the context of the letter having been submitted, could lead a reasonable person to think that it did not decide fairly, either consciously or unconsciously. Ceresco was required, however, to raise any allegation of bias in a timely fashion, and it did not do so (Bart v. McMaster University, 2016 ONSC 5747 (CanLII), paragraph 162). Instead, Ceresco asked the Board to disregard the letter sent by BroadGrain’s President and CEO, and the Board said that it did so. Had Ceresco raised the issue of bias in a timely way, such that it was not a new issue on appeal, I may well have found that it had established an arguable case relative to a reasonable apprehension of bias. ”
(5) Standard form of contract – Ceresco argued that the parties did not draft or negotiate the content of the Rules and that the Rules therefore comprised part of a standard form contract. As a result, it argued that the interpretation of the Rules extended beyond the parties and had precedential value in other, future disputes before the CSCA. On that basis, it argued that the interpretation of the Rules was a question of law.
Grammond J. observed that the record lacked two (2) categories of evidence: the circumstances in which the parties negotiated their Contract and the agreement to be bound by the Rules; the extent to which CSCA members and non-members include the Rules in their contracts. She offered an non-exhaustive list of facts Coresco ought to have provided:
“ In this case, there is no evidence before the Court as to the circumstances in which the parties agreed to be bound by the Arbitration Rules. The Contract, on its face, is a BroadGrain document. I must ask:
a) was incorporation by reference of the Arbitration Rules into the Contract an approach that BroadGrain utilized often;
b) was there specific discussion or negotiation between the parties regarding inclusion of the Arbitration Rules as the dispute resolution process in the Contract;
c) did Ceresco review the terms of the Contract prior to execution; and
d) did Ceresco receive or have the opportunity to receive independent legal advice prior to entering in to the Contract?”
“ While the evidence in this case disclosed that there are more than 110 CSCA members, there is no evidence of the extent to which they or non-CSCA members include the Arbitration Rules in contracts as a mechanism for dispute resolution. Similarly, there is no evidence of how many arbitrations the CSCA has handled. Accordingly, there is no evidence that the Arbitration Rules are “widely used”. There is no evidence as to how often the Rules are reviewed or revised, and whether the Rules at issue in this case were revised after the decision of the Board of Appeals. The Board concluded that a number of the Rules were ambiguous or lacked clarity. If those Rules have since been amended, the precedential value of a decision in this matter would be impacted.”
Grammond J. refers to Corydon Village Mall Ltd v. TEL Management Inc., 2017 MBCA 8, paras. 37-42 which explored in more detail the “take it or leave it” and “widely used” nature of standard form contracts. See also MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, paras 33-34, referred to by Corydon Village Mall Ltd v. TEL Management Inc., at para. 39.
(6) Importance of the matter to the parties – Grammond J. at paragraphs 58-81 analyzed the second and third factors of the test in section 44(2) for granting leave, namely does the importance to the parties of the matters at stake justify an appeal and will the determination of the question of law significantly affect the rights of the parties.
Contract Policy Committee v. FortisAlberta Inc., 2012 ABQB 653 established that those factors should be interpreted objectively, not subjectively and leave to appeal should not be given lightly. Section 44 does not require that importance to the public be proven and a monetary impact alone may be sufficient, a principle also considered by the court in Broadband Communications North Inc. v. I-Netlink Incorporated, 2017 MBQB 146. Having summarized each party’s arguments for and against the two factors, Grammond J. readily drew the lines. “Generally speaking, a party seeking leave to appeal an arbitration award will take the position that the importance of the matter justifies an appeal, while the responding party will say the opposite.”
Ceresco made only assertions of the impact and provided Grammond J. with no objective evidence of the importance of the matter, including the importance of the dollar amount to the parties.
“ Similarly, there is no specific or objective evidence relative to how the determination of a question of law would affect the rights of the parties, and whether that effect would be significant. The parties have no ongoing business relationship, and as I have already stated, there is no evidence as to the ongoing usage of the Arbitration Rules by either side. As such, the only apparent effect upon their rights is the impact of the outcome of this specific case, which relates solely to money, and there is no evidence of whether the monetary impact is significant to the parties.”
Based on the applicable law and the record before her constituted before the Arbitration Committee and the Board of Appeals, Grammond J. dismissed Ceresco J.’s application.
(7) Courts can manage their priorities – In arguing against exercising discretion to allow Ceresco to appeal, BroadGrain urged, among other grounds, that “in the current climate of significant pressure upon the Court to hear criminal and child protection matters in a timely way, the resources necessary to hear this matter would be better invested elsewhere”.
Grammond J. closed her careful reasons with a blunt rejection of such concerns for the court’s litigation priorities. “ This Court schedules the hearing of civil matters within a framework that serves other types of matters also. The perceived priority of other matters is not a valid reason to reject an application for leave to appeal of an arbitral award.”
Grammond J.’s reasons address several significant topics beyond the seven (7) which this note chooses to highlight. A closer read of her reasons rewards on other topics relevant to arbitration practice. This note is longer than others in order to deal with the more distinctive messages sent by her reasons.