28 Feb

 

The Importance of Context to Importance – Seeking Leave to Appeal from an Arbitral Award

Jeffrey D. Vallis, Q.C, FCIArb. and Shereen Khalfan

 

Whether a party can obtain leave to appeal is largely dependent on the basis for the appeal. Although the Arbitration Acts in certain provinces allow for an appeal, the application of the appeal provision has produced unpredictable outcomes. Many provinces, such as Saskatchewan, have adopted provisions to allow parties to a contract some certainty by permitting them to contract out of appeals on issues of fact, law, and mixed fact or law. However, other provinces, such as Alberta, have not. Until legislators take notice of the unpredictability caused by the lack of uniformity, parties in Alberta that include binding arbitration terms in their contracts will continue to face possible appeals to the courts.

 

Background

A significant perceived value of an arbitration is that it provides an efficient, timely and cost-effective method of dispute resolution. As a general proposition, and subject always to the arbitration agreement between the parties, an arbitration is meant to be final and binding. In Alberta and Saskatchewan, sections 44 and 45 of each province’s respective Arbitration Act govern appeals of arbitration decisions.[1] Under both provisions, the legislation provides a narrow path of recourse.

Whether a party can obtain leave to appeal is largely dependent on the basis for the appeal. Both statutes allow for an appeal based on a question of law, fact, or mixed law and fact depending on the express terms of the arbitration agreement.[2] If the agreement does not provide that the parties may appeal an award on a question of law, then subsection (2) of the Alberta Act provides that a party may, with the permission of the Court, appeal an award on a question of law as long as it meets the criteria set out in subsection (2.1), being that the importance to the parties of the matters at stake in the arbitration justifies an appeal, and the determination of the question of law at issue will significantly affect the rights of the parties.[3] However, even when the parties agree to final and binding arbitration with no appeals, in certain provinces, the Arbitration Act will override the stated intention of the parties to permit an appeal on some questions of law. This produces inconsistent results.

Alberta:

In KBR Industrial Canada Co. v Air Liquide Global, [4] an Alberta Court of Queen’s Bench decision, the Court stated that a section 44(2) appeal under the Alberta Act was unlikely to succeed on a question of contractual interpretation. Despite not granting permission pursuant to section 44(3), the Court nevertheless performed an analysis under section 44(2.1). It held that the court sets a very high standard for matters at stake in the arbitration that would justify an appeal. Since the parties would not have an ongoing relationship and the claim of $15 million was not severe or significant considering the size and sophistication of the parties, the matters at stake were not of great importance and were not sufficient enough to warrant an appeal process; thus, failing to meet the test to obtain leave to appeal under subsection (2.1).[5] Notably, in this case $15 million represented approximately twice the liability cap under the contract, and more than a third of the total contract value.

Saskatchewan:

In contrast, the Saskatchewan Court of Queen’s Bench recently granted leave to appeal in Graham Building Services, A JV v City of Saskatoon under similar statutory terms as Alberta. Graham Building Services, A JV and Flatiron Constructors Canada Ltd. (the “Applicants”) sought leave to appeal from a limited and discrete finding in an arbitration award related to an agreement between the Applicants and the respondent City of Saskatoon. The Court found that a damages amount of $1.2 million was significant, even though it was only five percent of the total claim that was ruled on by the arbitrator.[6]

A disagreement arose as to whether the City had properly withheld $1,530,000 as liquidated damages for delay in the completion of the project. The arbitrator ruled that the City was entitled to withhold $1,230,000. The applicants sought leave to appeal on the basis that the arbitrator failed to consider and apply the prevention principle, a principle of law that applies when an owner’s actions or omissions prevent a contractor from meeting a contractually-mandated completion date.

Under the design-build agreement (the “DBA”), the following provision was included under the heading “2.5 Arbitration”:

The decision of the arbitrator will be final and binding on the parties and subject only to judicial review or an appeal in accordance with the provisions of the Arbitration Act (Saskatchewan).

Mr. Justice Currie noted that in order to grant leave to appeal, the test under section 45(2) must be met.[7] He explained that the misapplication of the prevention principle would only be a question of law if it were aimed at examining whether the arbitrator used the correct law to apply to the facts.[8] In the submissions made to the arbitrator, the Applicants argued that the prevention principle operated to foreclose the triggering of liquidated damages. In his award, the arbitrator did not refer to the prevention principle. As such, the Applicants submitted to the Court that had the arbitrator considered the prevention principle, he would not have ruled as he did. Currie J. agreed that the appeal question proposed by the Applicants was a question of law.

After applying the test under section 45(2) of the Act, the Court found importance in the matters at stake in the arbitration and in the dollar value of the ruling.[9] It stated that more than one million dollars is significant to the parties, the shareholders of the Applicants’ partners, and the taxpayers of the City. As such, the Court held that the requirements of section 45(2) had been met. Leave to appeal was granted.

Unpredictability:

Although denied in KBR after a finding that the damages amount of $15 million dollars was not significant, leave to appeal was granted under similar statutory terms in Graham for a damages amount of $1.2 million. These cases had different results based on the same element of the same statutory test. As such, the application of the provision has produced unpredictable outcomes. Had the respective Arbitration Acts not allowed the parties to apply for leave to appeal where expressly excluded by the contracts, neither party would have faced the costs of debating what issues are important enough to justify an appeal. Creating uniformity among the provinces’ Arbitration Acts will allow parties the freedom to contract out of an appeal and be crucial for reducing unpredictable results. This would improve the certainty and efficiency that arbitration aims to achieve.

 


Jeffrey D. Vallis, Q.C, FCIArb is a partner at Borden Ladner Gervais LLP in Calgary. His practice focuses on construction litigation and arbitration, and he is recognized as one of the leading lawyers in Canada for construction law by the foremost legal rankings publications.

Shereen Khalfan is a Student-At-Law at Borden Ladner Gervais LLP in Calgary. Her main interests of practice are commercial litigation and arbitration.

 

[1] Arbitration Act, RSA 2000, c A-43 [the Alberta Act]; Arbitration Act, SS 1992, c A-24.1 at s 45 [the Saskatchewan Act].

[2] Alberta Act, supra note 1 at s 44(1); Saskatchewan Act, supra note 2 at s 45(1).

[3] Section 45(2) under Saskatchewan’s Act.

[4] KBR Industrial Canada Co. v Air Liquide Global, 2018 ABQB 257 [KBR].

[5] Ibid, paras 67-81.

[6] Graham Building Services, A JV v Saskatoon (City), 2018 SKQB 336 [Graham].

[7] Saskatchewan Act, supra note 2 at s 45(2); GFJV, Ibid at 7.

[8] Graham, supra note 6 at para 12.

[9] Ibid at para 29.

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