Sattva Capital Corp. v. Creston Moly Corp.

Sattva Capital Corp. v. Creston Moly Corp.
Collection
Supreme Court Judgments
Date
2014-08-01
Neutral citation
2014 SCC 53
Report
[2014] 2 SCR 633
Case number
35026
Judges
McLachlin, Beverley; Abella, Rosalie Silberman; Rothstein, Marshall; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard
On appeal from
British Columbia
Subjects
Arbitration
Notes
SCC Case Information: 35026
Decision Content
SUPREME COURT OF CANADA
Citation: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633
Date: 20140801 Docket: 35026
Between:
Sattva Capital Corporation (formerly Sattva Capital Inc.)
Appellant
and
Creston Moly Corporation (formerly Georgia Ventures Inc.)
Respondent
- and -
Attorney General of British Columbia and BCICAC Foundation
Interveners
Coram: McLachlin C.J. and LeBel, Abella, Rothstein, Moldaver, Karakatsanis and Wagner JJ.
Reasons for Judgment: (paras. 1 to 125)
Rothstein J. (McLachlin C.J. and LeBel, Abella, Moldaver, Karakatsanis and Wagner JJ. concurring)
sattva capital v. creston moly, 2014 SCC 53, [2014] 2 S.C.R. 633
Sattva Capital Corporation (formerly Sattva Capital Inc.) Appellant
v.
Creston Moly Corporation (formerly Georgia Ventures Inc.) Respondent
and
Attorney General of British Columbia and
BCICAC Foundation Interveners
Indexed as: Sattva Capital Corp. v. Creston Moly Corp.
2014 SCC 53
File No.: 35026.
2013: December 12; 2014: August 1.
Present: McLachlin C.J. and LeBel, Abella, Rothstein, Moldaver, Karakatsanis and Wagner JJ.
on appeal from the court of appeal for british columbia
Arbitration — Appeals — Commercial arbitration awards — Parties entering into agreement providing for payment of finder’s fee in shares — Parties disagreeing as to date on which to price shares for payment of finder’s fee and entering into arbitration — Leave to appeal arbitral award sought pursuant to s. 31(2) of the Arbitration Act — Leave to appeal denied but granted on appeal to Court of Appeal — Appeal of award dismissed but dismissal reversed by Court of Appeal — Whether Court of Appeal erred in granting leave to appeal — What is appropriate standard of review to be applied to commercial arbitral decisions made under Arbitration Act — Arbitration Act, R.S.B.C. 1996, c. 55, s. 31(2).
Contracts — Interpretation — Parties entering into agreement providing for payment of finder’s fee in shares — Parties disagreeing as to date on which to price the shares for payment of finder’s fee and entering into arbitration — Whether arbitrator reasonably construed contract as a whole — Whether contractual interpretation is question of law or of mixed fact and law.
S and C entered into an agreement that required C to pay S a finder’s fee in relation to the acquisition of a molybdenum mining property by C. The parties agreed that under this agreement, S was entitled to a finder’s fee of US$1.5 million and was entitled to be paid this fee in shares of C. However, they disagreed on which date should be used to price the shares and therefore the number of shares to which S was entitled. S argued that the share price was dictated by the date set out in the Market Price definition in the agreement and therefore that it should receive approximately 11,460,000 shares priced at $0.15. C claimed that the agreement’s “maximum amount” proviso prevented S from receiving shares valued at more than US$1.5 million on the date the fee was payable, and therefore that S should receive approximately 2,454,000 shares priced at $0.70. The parties entered into arbitration pursuant to the B.C. Arbitration Act and the arbitrator found in favour of S. C sought leave to appeal the arbitrator’s decision pursuant to s. 31(2) of the Arbitration Act, but leave was denied on the basis that the question on appeal was not a question of law. The Court of Appeal reversed the decision and granted C’s application for leave to appeal, finding that the arbitrator’s failure to address the meaning of the agreement’s “maximum amount” proviso raised a question of law. The superior court judge on appeal dismissed C’s appeal, holding that the arbitrator’s interpretation of the agreement was correct. The Court of Appeal allowed C’s appeal, finding that the arbitrator reached an absurd result. S appeals the decisions of the Court of Appeal that granted leave and that allowed the appeal.
Held: The appeal should be allowed and the arbitrator’s award reinstated.
Appeals from commercial arbitration decisions are narrowly circumscribed under the Arbitration Act. Under s. 31(1), they are limited to questions of law, and leave to appeal is required if the parties do not consent to the appeal. Section 31(2)(a) sets out the requirements for leave at issue in the present case: the court may grant leave if it determines that the result is important to the parties and the determination of the point of law may prevent a miscarriage of justice.
In the case at bar, the Court of Appeal erred in finding that the construction of the finder’s fee agreement constituted a question of law. Such an exercise raises a question of mixed fact and law, and therefore, the Court of Appeal erred in granting leave to appeal.
The historical approach according to which determining the legal rights and obligations of the parties under a written contract was considered a question of law should be abandoned. Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix of the contract.
It may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law; however, the close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare. The goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. Accordingly, courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. Legal errors made in the course of contractual interpretation include the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor. Concluding that C’s application for leave to appeal raised no question of law is sufficient to dispose of this appeal; however, the Court found it salutary to continue with its analysis.
In order to rise to the level of a miscarriage of justice for the purposes of s. 31(2)(a), an alleged legal error must pertain to a material issue in the dispute which, if decided differently, would affect the result of the case. According to this standard, a determination of a point of law “may prevent a miscarriage of justice” only where the appeal itself has some possibility of succeeding. An appeal with no chance of success will not meet the threshold of “may prevent a miscarriage of justice” because there would be no chance that the outcome of the appeal would cause a change in the final result of the case.
At the leave stage, it is not appropriate to consider the full merits of a case and make a final determination regarding whether an error of law was made. However, some preliminary consideration of the question of law by the leave court is necessary to determine whether the appeal has the potential to succeed and thus to change the result in the case. The appropriate threshold for assessing the legal question at issue under s. 31(2) is whether it has arguable merit, meaning that the issue raised by the applicant cannot be dismissed through a preliminary examination of the question of law.
Assessing whether the issue raised by an application for leave to appeal has arguable merit must be done in light of the standard of review on which the merits of the appeal will be judged. This requires a preliminary assessment of the standard of review. The leave court’s assessment of the standard of review is only preliminary and does not bind the court which considers the merits of the appeal.
The words “may grant leave” in s. 31(2) of the Arbitration Act confer on the court residual discretion to deny leave even where the requirements of s. 31(2) are met. Discretionary factors to consider in a leave application under s. 31(2)(a) include: conduct of the parties, existence of alternative remedies, undue delay and the urgent need for a final answer. These considerations could be a sound basis for declining leave to appeal an arbitral award even where the statutory criteria have been met. However, courts should exercise such discretion with caution.
Appellate review of commercial arbitration awards is different from judicial review of a decision of a statutory tribunal, thus the standard of review framework developed for judicial review in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, and the cases that followed it, is not entirely applicable to the commercial arbitration context. Nevertheless, judicial review of administrative tribunal decisions and appeals of arbitration awards are analogous in some respects. As a result, aspects of the Dunsmuir framework are helpful in determining the appropriate standard of review to apply in the case of commercial arbitration awards.
In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise. The question at issue here does not fall into one of those categories and thus the standard of review in this case is reasonableness.
In the present case, the arbitrator reasonably construed the contract as a whole in determining that S is entitled to be paid its finder’s fee in shares priced at $0.15. The arbitrator’s decision that the shares should be priced according to the Market Price definition gives effect to both that definition and the “maximum amount” proviso and reconciles them in a manner that cannot be said to be unreasonable. The arbitrator’s reasoning meets the reasonableness threshold of justifiability, transparency and intelligibility.
A court considering whether leave should be granted is not adjudicating the merits of the case. It decides only whether the matter warrants granting leave, not whether the appeal will be successful, even where the determination of whether to grant leave involves a preliminary consideration of the question of law at issue. For this reason, comments by a leave court regarding the merits cannot bind or limit the powers of the court hearing the actual appeal.
Cases Cited
Referred to: British Columbia Institute of Technology (Student Assn.) v. British Columbia Institute of Technology, 2000 BCCA 496, 192 D.L.R. (4th) 122; King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man. R. (2d) 63; Thorner v. Major, [2009] UKHL 18, [2009] 3 All E.R. 945; Prenn v. Simmonds, [1971] 3 All E.R. 237; Reardon Smith Line Ltd. v. Hansen‑Tangen, [1976] 3 All E.R. 570; Jiro Enterprises Ltd. v. Spencer, 2008 ABCA 87 (CanLII); QK Investments Inc. v. Crocus Investment Fund, 2008 MBCA 21, 290 D.L.R. (4th) 84; Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd., 2010 ABCA 126, 25 Alta. L.R. (5th) 221; Minister of National Revenue v. Costco Wholesale Canada Ltd., 2012 FCA 160, 431 N.R. 78; WCI Waste Conversion Inc. v. ADI International Inc., 2011 PECA 14, 309 Nfld. & P.E.I.R. 1; 269893 Alberta Ltd. v. Otter Bay Developments Ltd., 2009 BCCA 37, 266 B.C.A.C. 98; Hayes Forest Services Ltd. v. Weyerhaeuser Co., 2008 BCCA 31, 289 D.L.R. (4th) 230; Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81; Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300; Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98; Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62; Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129; United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316; Gutierrez v. Tropic International Ltd. (2002), 63 O.R. (3d) 63; Domtar Inc. v. Belkin Inc. (1989), 39 B.C.L.R. (2d) 257; Quan v. Cusson, 2009 SCC 62, [2009] 3 S.C.R. 712; Quick Auto Lease Inc. v. Nordin, 2014 MBCA 32, 303 Man. R. (2d) 262; R. v. Fedossenko, 2013 ABCA 164 (CanLII); Enns v. Hansey, 2013 MBCA 23 (CanLII); R. v. Hubley, 2009 PECA 21, 289 Nfld. & P.E.I.R. 174; R. v. Will, 2013 SKCA 4, 405 Sask. R. 270; Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708; Immeubles Port Louis Ltée v. Lafontaine (Village), [1991] 1 S.C.R. 326; MiningWatch Canada v. Canada (Fisheries and Oceans), 2010 SCC 2, [2010] 1 S.C.R. 6; R. v. Bellusci, 2012 SCC 44, [2012] 2 S.C.R. 509; R. v. Bjelland, 2009 SCC 38, [2009] 2 S.C.R. 651; R. v. Regan, 2002 SCC 12, [2002] 1 S.C.R. 297; Homex Realty and Development Co. v. Corporation of the Village of Wyoming, [1980] 2 S.C.R. 1011; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Pacifica Mortgage Investment Corp. v. Laus Holdings Ltd., 2013 BCCA 95, 333 B.C.A.C. 310, leave to appeal refused, [2013] 3 S.C.R. viii; Tamil Co‑operative Homes Inc. v. Arulappah (2000), 49 O.R. (3d) 566.
Statutes and Regulations Cited
Administrative Tribunals Act, S.B.C. 2004, c. 45, ss. 58, 59.
Arbitration Act, R.S.B.C. 1996, c. 55 [formerly Commercial Arbitration Act], s. 31.
Civil Code of Québec.
Authors Cited
Brown, Donald J. M., and John M. Evans, with the assistance of Christine E. Deacon. Judicial Review of Administrative Action in Canada. Toronto: Canvasback, 1998 (loose-leaf updated May 2014, release 1).
Dyzenhaus, David. “The Politics of Deference: Judicial Review and Democracy”, in Michael Taggart, ed., The Province of Administrative Law. Oxford: Hart, 1997, 279.
Hall, Geoff R. Canadian Contractual Interpretation Law, 2nd ed. Markham, Ont.: LexisNexis, 2012.
Lewison, Kim. The Interpretation of Contracts, 5th ed. London: Sweet & Maxwell, 2011 & Supp. 2013.
McCamus, John D. The Law of Contracts, 2nd ed. Toronto: Irwin Law, 2012.
APPEAL from a judgment of the British Columbia Court of Appeal (Newbury, Low and Levine JJ.A.), 2010 BCCA 239, 7 B.C.L.R. (5th) 227, 319 D.L.R. (4th) 219, [2010] B.C.J. No. 891 (QL), 2010 CarswellBC 1210, setting aside a decision of Greyell J., 2009 BCSC 1079, [2009] B.C.J. No. 1597 (QL), 2009 CarswellBC 2096, and from a subsequent judgment of the British Columbia Court of Appeal (Kirkpatrick, Neilson and Bennett JJ.A.), 2012 BCCA 329, 36 B.C.L.R. (5th) 71, 326 B.C.A.C. 114, 554 W.A.C. 114, 2 B.L.R. (5th) 1, [2012] B.C.J. No. 1631 (QL), 2012 CarswellBC 2327, setting aside a decision of Armstrong J., 2011 BCSC 597, 84 B.L.R. (4th) 102, [2011] B.C.J. No. 861 (QL), 2011 CarswellBC 1124. Appeal allowed.
Michael A. Feder and Tammy Shoranick, for the appellant.
Darrell W. Roberts, Q.C., and David Mitchell, for the respondent.
Jonathan Eades and Micah Weintraub, for the intervener the Attorney General of British Columbia.
David Wotherspoon and Gavin R. Cameron, for the intervener the BCICAC Foundation.
TABLE OF CONTENTS
Paragraph
I. Facts. 2
II. Arbitral Award. 11
III. Judicial History. 19
A. British Columbia Supreme Court — Leave to Appeal Decision, 2009 BCSC 1079. 19
B. British Columbia Court of Appeal — Leave to Appeal Decision, 2010 BCCA 239. 21
C. British Columbia Supreme Court — Appeal Decision, 2011 BCSC 597. 23
D. British Columbia Court of Appeal — Appeal Decision, 2012 BCCA 329. 28
IV. Issues. 31
V. Analysis. 32
A. The Leave Issue Is Properly Before This Court 32
B. The CA Leave Court Erred in Granting Leave Under Section 31(2) of the AA.. 38
(1) Considerations Relevant to Granting or Denying Leave to Appeal Under the AA.. 38
(2) The Result Is Important to the Parties. 41
(3) The Question Under Appeal Is Not a Question of Law.. 42
(a) When Is Contractual Interpretation a Question of Law?. 42
(b) The Role and Nature of the “Surrounding Circumstances”. 56
(c) Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule 59
(d) Application to the Present Case. 62
(4) May Prevent a Miscarriage of Justice. 68
(a) Miscarriage of Justice for the Purposes of Section 31(2)(a) of the AA.. 68
(b) Application to the Present Case. 80
(5) Residual Discretion to Deny Leave. 85
(a) Considerations in Exercising Residual Discretion in a Section 31(2)(a) Leave Application 85
(b) Application to the Present Case. 93
C. Standard of Review Under the AA.. 102
D. The Arbitrator Reasonably Construed the Agreement as a Whole. 107
E. Appeal Courts Are Not Bound by Comments on the Merits of the Appeal Made by Leave Courts. 120
VI. Conclusion. 125
APPENDIX I
Relevant Provisions of the Sattva-Creston Finder’s Fee Agreement
APPENDIX II
Section 3.3 of TSX Venture Exchange Policy 5.1: Loans, Bonuses, Finder’s Fees and Commissions
APPENDIX III
Commercial Arbitration Act, R.S.B.C. 1996, c. 55 (as it read on January 12, 2007) (now the Arbitration Act)
The judgment of the Court was delivered by
[1] Rothstein J. — When is contractual interpretation to be treated as a question of mixed fact and law and when should it be treated as a question of law? How is the balance between reviewability and finality of commercial arbitration awards under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55 (now the Arbitration Act, hereinafter the “AA”), to be determined? Can findings made by a court granting leave to appeal with respect to the merits of an appeal bind the court that ultimately decides the appeal? These are three of the issues that arise in this appeal.
I. Facts
[2] The issues in this case arise out of the obligation of Creston Moly Corporation (formerly Georgia Ventures Inc.) to pay a finder’s fee to Sattva Capital Corporation (formerly Sattva Capital Inc.). The parties agree that Sattva is entitled to a finder’s fee of US$1.5 million and is entitled to be paid this fee in shares of Creston, cash or a combination thereof. They disagree on which date should be used to price the Creston shares and therefore the number of shares to which Sattva is entitled.
[3] Mr. Hai Van Le, a principal of Sattva, introduced Creston to the opportunity to acquire a molybdenum mining property in Mexico. On January 12, 2007, the parties entered into an agreement (the “Agreement”) that required Creston to pay Sattva a finder’s fee in relation to the acquisition of this property. The relevant provisions of the Agreement are set out in Appendix I.
[4] On January 30, 2007, Creston entered into an agreement to purchase the property for US$30 million. On January 31, 2007, at the request of Creston, trading of Creston’s shares on the TSX Venture Exchange (“TSXV”) was halted to prevent speculation while Creston completed due diligence in relation to the purchase. On March 26, 2007, Creston announced it intended to complete the purchase and trading resumed the following day.
[5] The Agreement provides that Sattva was to be paid a finder’s fee equal to the maximum amount that could be paid pursuant to s. 3.3 of Policy 5.1 in the TSXV Policy Manual. Section 3.3 of Policy 5.1 is incorporated by reference into the Agreement at s. 3.1 and is set out in Appendix II of these reasons. The maximum amount pursuant to s. 3.3 of Policy 5.1 in this case is US$1.5 million.
[6] According to the Agreement, by default, the fee would be paid in Creston shares. The fee would only be paid in cash or a combination of shares and cash if Sattva made such an election. Sattva made no such election and was therefore entitled to be paid the fee in shares. The finder’s fee was to be paid no later than five working days after the closing of the transaction purchasing the molybdenum mining property.
[7] The dispute between the parties concerns which date should be used to determine the price of Creston shares and thus the number of shares to which Sattva is entitled. Sattva argues that the share price is dictated by the Market Price definition at s. 2 of the Agreement, i.e. the price of the shares “as calculated on close of business day before the issuance of the press release announcing the Acquisition”. The press release announcing the acquisition was released on March 26, 2007. Prior to the halt in trading on January 31, 2007, the last closing price of Creston shares was $0.15. On this interpretation, Sattva would receive approximately 11,460,000 shares (based on the finder’s fee of US$1.5 million).
[8] Creston claims that the Agreement’s “maximum amount” proviso means that Sattva cannot receive cash or shares valued at more than US$1.5 million on the date the fee is payable. The shares were payable no later than five days after May 17, 2007, the closing date of the transaction. At that time, the shares were priced at $0.70 per share. This valuation is based on the price an investment banking firm valued Creston at as part of underwriting a private placement of shares on April 17, 2007. On this interpretation, Sattva would receive approximately 2,454,000 shares, some 9 million fewer shares than if the shares were priced at $0.15 per share.
[9] The parties entered into arbitration pursuant to the AA. The arbitrator found in favour of Sattva. Creston sought leave to appeal the arbitrator’s decision pursuant to s. 31(2) of the AA. Leave was denied by the British Columbia Supreme Court (2009 BCSC 1079 (CanLII) (“SC Leave Court”)). Creston successfully appealed this decision and was granted leave to appeal the arbitrator’s decision by the British Columbia Court of Appeal (2010 BCCA 239, 7 B.C.L.R. (5th) 227 (“CA Leave Court”)).
[10] The British Columbia Supreme Court judge who heard the merits of the appeal (2011 BCSC 597, 84 B.L.R. (4th) 102 (“SC Appeal Court”)) upheld the arbitrator’s award. Creston appealed that decision to the British Columbia Court of Appeal (2012 BCCA 329, 36 B.C.L.R. (5th) 71 (“CA Appeal Court”)). That court overturned the SC Appeal Court and found in favour of Creston. Sattva appeals the decisions of the CA Leave Court and CA Appeal Court to this Court.
II. Arbitral Award
[11] The arbitrator, Leon Getz, Q.C., found in favour of Sattva, holding that it was entitled to receive its US$1.5 million finder’s fee in shares priced at $0.15 per share.
[12] The arbitrator based his decision on the Market Price definition in the Agreement:
What, then, was the “Market Price” within the meaning of the Agreement? The relevant press release is that issued on March 26 . . . . Although there was no closing price on March 25 (the shares being on that date halted), the “last closing price” within the meaning of the definition was the $0.15 at which the [Creston] shares closed on January 30, the day before trading was halted “pending news” . . . . This conclusion requires no stretching of the words of the contractual definition; on the contrary, it falls literally within those words. [para. 22]
[13] Both the Agreement and the finder’s fee had to be approved by the TSXV. Creston was responsible for securing this approval. The arbitrator found that it was either an implied or an express term of the Agreement that Creston would use its best efforts to secure the TSXV’s approval and that Creston did not apply its best efforts to this end.
[14] As previously noted, by default, the finder’s fee would be paid in shares unless Sattva made an election otherwise. The arbitrator found that Sattva never made such an election. Despite this, Creston represented to the TSXV that the finder’s fee was to be paid in cash. The TSXV conditionally approved a finder’s fee of US$1.5 million to be paid in cash. Sattva first learned that the fee had been approved as a cash payment in early June 2007. When Sattva raised this matter with Creston, Creston responded by saying that Sattva had the choice of taking the finder’s fee in cash or in shares priced at $0.70.
[15] Sattva maintained that it was entitled to have the finder’s fee paid in shares priced at $0.15. Creston asked its lawyer to contact the TSXV to clarify the minimum share price it would approve for payment of the finder’s fee. The TSXV confirmed on June 7, 2007 over the phone and August 9, 2007 via email that the minimum share price that could be used to pay the finder’s fee was $0.70 per share. The arbitrator found that Creston “consistently misrepresented or at the very least failed to disclose fully the nature of the obligation it had undertaken to Sattva” (para. 56(k)) and “that in the absence of an election otherwise, Sattva is entitled under that Agreement to have that fee paid in shares at $0.15” (para. 56(g)). The arbitrator found that the first time Sattva’s position was squarely put before the TSXV was in a letter from Sattva’s solicitor on October 9, 2007.
[16] The arbitrator found that had Creston used its best efforts, the TSXV could have approved the payment of the finder’s fee in shares priced at $0.15 and such a decision would have been consistent with its policies. He determined that there was “a substantial probability that [TSXV] approval would have been given” (para. 81). He assessed that probability at 85 percent.
[17] The arbitrator found that Sattva could have sold its Creston shares after a four-month holding period at between $0.40 and $0.44 per share, netting proceeds of between $4,583,914 and $5,156,934. The arbitrator took the average of those two amounts, which came to $4,870,424, and then assessed damages at 85 percent of that number, which came to $4,139,860, and rounded it to $4,140,000 plus costs.
[18] After this award was made, Creston made a cash payment of US$1.5 million (or the equivalent in Canadian dollars) to Sattva. The balance of the damages awarded by the arbitrator was placed in the trust account of Sattva’s solicitors.
III. Judicial History
A. British Columbia Supreme Court — Leave to Appeal Decision, 2009 BCSC 1079
[19] The SC Leave Court denied leave to appeal because it found the question on appeal was not a question of law as required under s. 31 of the AA. In the judge’s view, the issue was one of mixed fact and law because the arbitrator relied on the “factual matrix” in coming to his conclusion. Specifically, determining how the finder’s fee was to be paid involved examining “the TSX’s policies concerning the maximum amount of the finder’s fee payable, as well as the discretionary powers granted to the Exchange in determining that amount” (para. 35).
[20] The judge found that even had he found a question of law was at issue he would have exercised his discretion against granting leave because of Creston’s conduct in misrepresenting the status of the finder’s fee to the TSXV and Sattva, and “on the principle that one of the objectives of the [AA] is to foster and preserve the integrity of the arbitration system” (para. 41).
B. British Columbia Court of Appeal — Leave to Appeal Decision, 2010 BCCA 239
[21] The CA Leave Court reversed the SC Leave Court and granted Creston’s application for leave to appeal the arbitral award. It found the SC Leave Court “err[ed] in failing to find that the arbitrator’s failure to address the meaning of s. 3.1 of the Agreement (and in particular the ‘maximum amount’ provision) raised a question of law” (para. 23). The CA Leave Court decided that the construction of s. 3.1 of the Agreement, and in particular the “maximum amount” proviso, was a question of law because it did not involve reference to the facts of what the TSXV was told or what it decided.
[22] The CA Leave Court acknowledged that Creston was “less than forthcoming in its dealings with Mr. Le and the [TSXV]” but said that “these facts are not directly relevant to the question of law it advances on the appeal” (para. 27). With respect to the SC leave judge’s reference to the preservation of the integrity of the arbitration system, the CA Leave Court said that the parties would have known when they chose to enter arbitration under the AA that an appeal on a question of law was possible. Additionally, while the finality of arbitration is an important factor in exercising discretion, when “a question of law arises on a matter of importance and a miscarriage of justice might be perpetrated if an appeal were not available, the integrity of the process requires, at least in the circumstances of this case, that the right of appeal granted by the legislation also be respected” (para. 29).
C. British Columbia Supreme Court — Appeal Decision, 2011 BCSC 597
[23] Armstrong J. reviewed the arbitrator’s decision on a correctness standard. He dismissed the appeal, holding the arbitrator’s interpretation of the Agreement was correct.
[24] Armstrong J. found that the plain and ordinary meaning of the Agreement required that the US$1.5 million fee be paid in shares priced at $0.15. He did not find the meaning to be absurd simply because the price of the shares at the date the fee became payable had increased in relation to the price determined according to the Market Price definition. He was of the view that changes in the price of shares over time are inevitable, and that the parties, as sophisticated business persons, would have reasonably understood a fluctuation in share price to be a reality when providing for a fee payable in shares. According to Armstrong J., it is indeed because of market fluctuations that it is necessary to choose a specific date to price the shares in advance of payment. He found that this was done by defining “Market Price” in the Agreement, and that the fee remained US$1.5 million in $0.15 shares as determined by the Market Price definition regardless of the price of the shares at the date that the fee was payable.
[25] According to Armstrong J., that the price of the shares may be more than the Market Price definition price when they became payable was foreseeable as a “natural consequence of the fee agreement” (para. 62). He was of the view that the risk was borne by Sattva, since the price of the shares could increase, but it could also decrease such that Sattva would have received shares valued at less than the agreed upon fee of US$1.5 million.
[26] Armstrong J. held that the arbitrator’s interpretation which gave effect to both the Market Price definition and the “maximum amount” proviso should be preferred to Creston’s interpretation of the agreement which ignored the Market Price definition.
[27] In response to Creston’s argument that the arbitrator did not consider s. 3.1 of the Agreement which contains the “maximum amount” proviso, Armstrong J. noted that the arbitrator explicitly addressed the “maximum amount” proviso at para. 23 of his decision.
D. British Columbia Court of Appeal — Appeal Decision, 2012 BCCA 329
[28] The CA Appeal Court allowed Creston’s appeal, ordering that the payment of US$1.5 million that had been made by Creston to Sattva on account of the arbitrator’s award constituted payment in full of the finder’s fee. The court reviewed the arbitrator’s decision on a standard of correctness.
[29] The CA Appeal Court found that both it and the SC Appeal Court were bound by the findings made by the CA Leave Court. There were two findings that were binding: (1) it would be anomalous if the Agreement allowed Sattva to receive US$1.5 million if it received its fee in cash, but shares valued at approximately $8 million if Sattva took its fee in shares; and (2) the arbitrator ignored this anomaly and did not address s. 3.1 of the Agreement.
[30] The Court of Appeal found that it was an absurd result to find that Sattva is entitled to an $8 million finder’s fee in light of the fact that the “maximum amount” proviso in the Agreement limits the finder’s fee to US$1.5 million. The court was of the view that the proviso limiting the fee to US$1.5 million “when paid” should be given paramount effect (para. 47). In its opinion, giving effect to the Market Price definition could not have been the intention of the parties, nor could it have been in accordance with good business sense.
IV. Issues
[31] The following issues arise in this appeal:
(a) Is the issue of whether the CA Leave Court erred in granting leave under s. 31(2) of the AA properly before this Court?
(b) Did the CA Leave Court err in granting leave under s. 31(2) of the AA?
(c) If leave was properly granted, what is the appropriate standard of review to be applied to commercial arbitral decisions made under the AA?
(d) Did the arbitrator reasonably construe the Agreement as a whole?
(e) Did the CA Appeal Court err in holding that it was bound by comments regarding the merits of the appeal made by the CA Leave Court?
V. Analysis
A. The Leave Issue Is Properly Before This Court
[32] Sattva argues, in part, that the CA Leave Court erred in granting leave to appeal from the arbitrator’s decision. In Sattva’s view, the CA Leave Court did not identify a question of law, a requirement to obtain leave pursuant to s. 31(2) of the AA. Creston argues that this issue is not properly before this Court. Creston makes two arguments in support of this point.
[33] First, Creston argues that this issue was not advanced in Sattva’s application for leave to appeal to this Court. This argument must fail. Unless this Court places restrictions in the order granting leave, the order granting leave is “at large”. Accordingly, appellants may raise issues on appeal that were not set out in the leave application. However, the Court may exercise its discretion to refuse to deal with issues that were not addressed in the courts below, if there is prejudice to the respondent, or if for any other reason the Court considers it appropriate not to deal with a question.
[34] Here, this Court’s order granting leave to appeal from both the CA Leave Court decision and the CA Appeal Court decision contained no restrictions (2013 CanLII 11315). The issue — whether the proposed appeal was on a question of law — was expressly argued before, and was dealt with in the judgments of, the SC Leave Court and the CA Leave Court. There is no reason Sattva should be precluded from raising this issue on appeal despite the fact it was not mentioned in its application for leave to appeal to this Court.
[35] Second, Creston argues that the issue of whether the CA Leave Court identified a question of law is not properly before this Court because Sattva did not contest this decision before all of the lower courts. Specifically, Creston states that Sattva did not argue that the question on appeal was one of mixed fact and law before the SC Appeal Court and that it conceded the issue on appeal was a question of law before the CA Appeal Court. This argument must also fail. At the SC Appeal Court, it was not open to Sattva to reargue the question of whether leave should have been granted. The SC Appeal Court was bound by the CA Leave Court’s finding that leave should have been granted, including the determination that a question of law had been identified. Accordingly, Sattva could hardly be expected to reargue before the SC Appeal Court a question that had been determined by the CA Leave Court. There is nothing in the AA to indicate that Sattva could have appealed the leave decision made by a panel of the Court of Appeal to another panel of the same court. The fact that Sattva did not reargue the issue before the SC Appeal Court or CA Appeal Court does not prevent it from raising the issue before this Court, particularly since Sattva was also granted leave to appeal the CA Leave Court decision by this Court.
[36] While this Court may decline to grant leave where an issue sought to be argued before it was not argued in the courts appealed from, that is not this case. Here, whether leave from the arbitrator’s decision had been sought by Creston on a question of law or a question of mixed fact and law had been argued in the lower leave courts.
[37] Accordingly, the issue of whether the CA Leave Court erred in finding a question of law for the purposes of granting leave to appeal is properly before this Court.
B. The CA Leave Court Erred in Granting Leave Under Section 31(2) of the AA
(1) Considerations Relevant to Granting or Denying Leave to Appeal Under the AA
[38] Appeals from commercial arbitration decisions are narrowly circumscribed under the AA. Under s. 31(1), appeals are limited to either questions of law where the parties consent to the appeal or to questions of law where the parties do not consent but where leave to appeal is granted. Section 31(2) of the AA, reproduced in its entirety in Appendix III, sets out the requirements for leave:
(2) In an application for leave under subsection (1)(b), the court may grant leave if it determines that
(a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,
(b) the point of law is of importance to some class or body of persons of which the applicant is a member, or
(c) the point of law is of general or public importance.
[39] The B.C. courts have found that the words “may grant leave” in s. 31(2) of the AA give the courts judicial discretion to deny leave even where the statutory requirements have been met (British Columbia Institute of Technology (Student Assn.) v. British Columbia Institute of Technology, 2000 BCCA 496, 192 D.L.R. (4th) 122 (“BCIT”), at paras. 25-26). Appellate review of an arbitrator’s award will only occur where the requirements of s. 31(2) are met and where the leave court does not exercise its residual discretion to nonetheless deny leave.
[40] Although Creston’s application to the SC Leave Court sought leave pursuant to s. 31(2)(a), (b) and (c), it appears the arguments before that court and throughout focused on s. 31(2)(a). The SC Leave Court’s decision quotes a lengthy passage from BCIT that focuses on the requirements of s. 31(2)(a). The SC Leave Court judge noted that both parties conceded the first requirement of s. 31(2)(a): that the issue be of importance to the parties. The CA Leave Court decision expressed concern that denying leave might give rise to a miscarriage of justice — a criterion only found in s. 31(2)(a). Finally, neither the lower courts’ leave decisions nor the arguments before this Court reflected arguments about the question of law being important to some class or body of persons of which the applicant is a member (s. 31(2)(b)) or being a point of law of general or public importance (s. 31(2)(c)). Accordingly, the following analysis will focus on s. 31(2)(a).
(2) The Result Is Important to the Parties
[41] In order for leave to be granted from a commercial arbitral award, a threshold requirement must be met: leave must be sought on a question of law. However, before dealing with that issue, it will be convenient to quickly address another requirement of s. 31(2)(a) on which the parties agree: whether the importance of the result of the arbitration to the parties justifies the intervention of the court. Justice Saunders explained this criterion in BCIT as requiring that the result of