In Diorite Securities v. Trevali, 2019 ONSC 4225, Mr. Justice Laurence A. Pattillo held that determining whether parties intended to exclude a right of appeal required analysis of both the actual wording in their agreement and the circumstances surrounding its negotiation. The application for leave to appeal involved an agreement entered into before Ontario’s Arbitration Act, 1991, SO 1991, c 17, a time at which no appeal was provided on even questions of law. The 1990 agreement required Pattillo J. to consider whether the parties’ wording disclosed an intention to allow or deny appeals on a question of law and whether the award contained a “rare” extricable question of law.
Trevali Mining (New Brunswick) Ltd. (“Trevali”) operates an underground base-metal mine in Bathurst, New Brunswick (“Cariboo Mine”) pursuant to a mineral lease granted to it by the province of New Brunswick. Diorite Securities Limited as Trustee of the Fern Trust (“Diorite”) owns a 10% interest in the net profits of the Cariboo Mine further to a grant confirmed by an August 9, 1990 contract (“NPI Agreement”) which contained the following arbitration clause:
“any dispute regarding the calculation or payment of net profits shall be settled pursuant to the terms of the Arbitration Act (Ontario) and the parties hereto agree to be bound by any decision reached pursuant to such arbitration.”
Trevali became the owner of the Cariboo Mine in 2012 and brought it to commercial production by July 2016. On November 17, 2016, Trevali delivered to Diorite a statement of net profit but Diorite objected to the manner in which Trevali calculated net profit. Diorite served a notice to arbitrate and both parties agreed to proceed to arbitration in two (2) phases. Phase 1 would concern the interpretation of the NPI Agreement. Phase 2 would concern other issues including calculation of Diorite’s net profits.
A November 26, 2018 award (“Award”) issued in which the arbitrator answered the questions framed by the parties. See paras 7-8 of Pattillo J.’s reasons for the questions and answers respectively.
Dissatisfied with the decision on one of the questions framed, Diorite applied for leave to appeal the Award under section 45 of the Arbitration Act. It submitted that the arbitrator had erred in law by the manner in which he interpreted the NPI Agreement and, in doing so, gave rise to an extricable question of law.
Trevali contested Diorite’s application, arguing that the NPI Agreement did not permit appeals whether on a question of law or otherwise.
Trevali argued that, the version of Ontario’s Arbitration Act, in effect when the 1990 NPI Agreement was negotiated, permitted no right of appeal, even on a question of law. The subsequent 1991 update to the legislation allowed appeals on leave provided the court was satisfied of the importance of the question and would have a significant impact on the parties’ rights.
Trevali argued that the wording in the NPI Agreement intended to exclude a right of appeal, relying on Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27, 1997 CanLII 1429 (ON CA) (“L.I.U.N.A.”) In that case, the court held that use of the expression “final and binding” served to implicitly exclude the right of appeal under section 45 of the Arbitration Act.
Pattillo J. looked closely at the reasoning in L.I.U.N.A., noting that the court had determined the issues before it by an analysis of the language of the agreement together with those circumstances surrounding the negotiation or “making” of the agreement to arbitrate.
Pattillo J. was unable to conclude that the parties which had negotiated the 1990 NPI Agreement had intended that there be no right of appeal. No circumstances permitted him to find such intention and his reading of the arbitration clause provided no confirmation either.
“The NPI Agreement is brief and primarily deals with the calculation of net profits. The arbitration clause itself states only that the parties agree to be bound by any decision. In the absence of additional wording to indicate the decision is intended to be final, the agreement to be bound means no more in my view than the parties agree to abide by the decision.”
Fiorite submitted Bank of Nova Scotia v. Span West Farms Ltd., 2003 SKQB 306 which it argued was “on all fours” with the situation before Pattillo J. After summarizing the approach taken by the Saskatchewan Court of Queen’s Bench at paras 19-20, Pattillo J. expressly declined to follow that case.
“[21] I decline to follow the Span West Farms decision. Apart from not being bound by it, I consider that the reasoning of the learned judge in that case to find an “implicit waiver” is contrary to the approach to determining the question of whether the parties to the agreement intended to exclude the right to appeal as set out in L.I.U.N.A.”
Having determined that the wording of the arbitration agreement did not exclude the opportunity to apply for leave to appeal, Pattillo J. next considered whether applicant could successfully argue that the arbitrator had made an extricable error of law and thereby obtain leave to appeal. See other cases which followed that reasoning: Weisz v. Four Seasons Holdings Inc., 2010 ONSC 4456; Nasjjec v. Nuyork, 2015 ONSC 4978.
At para. 9 of his reasons, Pattillo J. summarized the exact grounds raised by Diorite. Those grounds involve claims that in the Award the arbitrator misapprehended and/or mischaracterized the legal nature of Diorite’s interest, ignored, discounted and/or misapprehended language in the NPI Agreement requiring determination of expenses and mining practices in accordance with specific standards and filed to consider and/or apply certain principles of contractual interpretation or evidence relevant to those principles.
Pattillo J. prefaced his own analysis with reference to Creston Moly Corp. v. Sattva Capital Corp, 2014 SCC 53 (CanLII), [2014] 2 S.C.R 633, paras 50-55 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 S.C.R. 688, paras 45 and 65.
He pointed out that those decisions confirmed that questions of contractual interpretation are questions of mixed fact and law and that some aspects of contractual interpretation may give rise to extricable pure questions of law. Pattillo J. noted that in those cases the Supreme Court had cautioned that such instances will be rare and will occur only where the decision-maker has (i) applied an incorrect legal standard, (ii) failed to consider a required element of a legal test or (iii) similarly erred in principle with respect to the application of the law.
Applying that caution, Pattillo J. then discussed the two (2) main submissions made by Diorite.
First – did the arbitrator misapprehend and/or mischaracterize the legal nature of the NPI Agreement
Pattillo J.’s analysis is set out at paras 24-39 of his reasons. In his analysis, Pattillo J. had to determine whether the arbitrator had properly dealt with arguments and authorities submitted by the parties.
“[38] Having concluded his interpretation of the NPI Agreement at para. 52 of the Award based on the plain and ordinary meaning of the relevant words, the business context of the Agreement and the Rideout and Leger Decisions, the arbitrator noted at para. 53 that it was not necessary to address the bulk of the submissions made to him. He did, however, make some brief comments in respect of them including his comment that he made no reference to the “numerous authorities cited by both sides to the ‘usual’ interpretation of profit sharing and royalty arrangements in the mining industry.” He stated that no purpose would be served in comparing the language used in those cases with the language used in the NPI Agreement.
[39] It is clear from the decision that the “numerous authorities” had no bearing on the arbitrator’s decision. Further, as noted in Sattva, at para. 48, the arbitrator was not required to refer to all the arguments, provisions or jurisprudence in the Award. In reviewing the entire decision, I do not consider the arbitrator made an extricable error of law by not addressing specifically the “numerous authorities” cited by both sides.”
Second – did the arbitrator ignore, discount and/or mischaracterize the language in the NPI Agreement
Pattillo J.’s analysis is set out at paras 40-49 of his reasons, after which he determined that the question raised a question of mixed fact and law and not a question of law.
“[48] In my view, the Applicant’s allegations do not implicate the legal standard or test applied by the arbitrator in interpreting the NPI Agreement and accordingly do not amount to an extricable error of law. The submissions engage the issue of how the arbitrator applied the principles of contractual interpretation (a question of mixed fact and law) and not whether the arbitrator applied the proper principles (a question of law).”
urbitral note – The close analysis of the grounds, clustered at paras 24-39 and 40-49, illustrates how carefully courts will consider the reasoning in awards before granting or refusing leave. Arbitral parties as well as arbitrators must anticipate whether, with such close scrutiny, awards in their arbitrations can withstand the unsuccessful party’s attempt to extricate a legal question.
In the circumstances, the Award’s reasoning withstood close scrutiny because that scrutiny flowed from the court’s own adherence to the caution, set out in Creston Moly Corp. v. Sattva Capital Corp and Teal Cedar Products Ltd. v. British Columbia, that extricable questions of law will be rare and will occur only where the arbitrator has (i) applied an incorrect legal standard, (ii) failed to consider a required element of a legal test or (iii) similarly erred in principle with respect to the application of the law.
update – Application for leave to appeal dismissed, March 5, 2020 Diorite Securities Limited, as Trustee of The Fern Trust v. Trevali Mining (New Brunswick) Ltd. SCC 38881.