Teal Cedar Products Ltd. v. British Columbia

Teal Cedar Products Ltd. v. British Columbia
Collection
Supreme Court Judgments
Date
2017-06-22
Neutral citation
2017 SCC 32
Report
[2017] 1 SCR 688
Case number
36595
Judges
McLachlin, Beverley; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard; Gascon, Clément; Côté, Suzanne; Brown, Russell; Rowe, Malcolm
On appeal from
British Columbia
Notes
SCC Case Information: 36595
Decision Content
SUPREME COURT OF CANADA
Citation: Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688
Appeal Heard: November 1, 2016
Judgment Rendered: June 22, 2017
Docket: 36595
Between:
Teal Cedar Products Ltd.
Appellant
and
Her Majesty The Queen in Right of the Province of British Columbia
Respondent
And Between:
Teal Cedar Products Ltd.
Appellant
and
Her Majesty The Queen in Right of the Province of British Columbia
Respondent
Coram: McLachlin C.J. and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ.
Reasons for Judgment:
(paras. 1 to 103)
Gascon J. (McLachlin C.J. and Abella, Karakatsanis and Wagner JJ. concurring)
Joint Reasons Dissenting in Part:
(paras. 104 to 139)
Moldaver and Côté JJ. (Brown and Rowe JJ. concurring)
Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688
Teal Cedar Products Ltd. Appellant
v.
Her Majesty the Queen in Right of the
Province of British Columbia Respondent
‑ and ‑
Teal Cedar Products Ltd. Appellant
v.
Her Majesty the Queen in Right of the
Province of British Columbia Respondent
Indexed as: Teal Cedar Products Ltd. v. British Columbia
2017 SCC 32
File No.: 36595.
2016: November 1; 2017: June 22.
Present: McLachlin C.J. and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ.
on appeal from the court of appeal for british columbia
Arbitration — Appeals — Jurisdiction — Standard of review — Commercial arbitration awards — Province reducing forestry company’s access to improvements on Crown land used to harvest timber — Parties disagreeing as to amount of compensation owed to forestry company and entering into arbitration — Leave to appeal award sought by parties pursuant to s. 31(2) of the Arbitration Act — Appeal of award dismissed in part but dismissal reversed by Court of Appeal — Whether Court of Appeal erred in construing issues decided by arbitrator as questions of law subject to appellate review — Arbitration Act, R.S.B.C. 1996, c. 55, s. 31.
Contracts — Interpretation — Use of factual matrix — Province reducing forestry company’s access to improvements on Crown land used to harvest timber — Parties entering into agreement to negotiate compensation owed to forestry company for loss of access to improvements — Agreement precluding payment of interest as part of compensation — Parties disagreeing as to amount of compensation and entering into arbitration — Whether legal question arises from arbitrator’s contractual interpretation of forestry company’s entitlement to interest.
Natural resources — Forests — Permits and licences — Province reducing forestry company’s access to improvements on Crown land used to harvest timber — Parties disagreeing as to amount of compensation owed to forestry company and entering into arbitration — Whether arbitrator’s conclusion that forestry company’s losses may be valued on basis of depreciation replacement cost method was reasonable — Forestry Revitalization Act, S.B.C. 2003, c. 17, s. 6(4).
T, a forestry company, holds licences to harvest Crown timber in the province of British Columbia. When the province reduced the volume of T’s allowable harvest and deleted certain areas from the related Crown land base, the parties were unable to settle how much compensation the province owed to T for reducing the latter’s access to certain improvements such as roads and bridges which T used to harvest the timber. Consequently, their dispute was submitted to arbitration in accordance with the Forestry Revitalization Act (“Revitalization Act”). The arbitrator was seized of an issue of statutory interpretation to determine the proper valuation method for the improvements pursuant to the Revitalization Act, which he found to be the depreciation replacement cost method. The arbitrator also ruled on an issue of contractual interpretation, concluding that an agreement reached by the parties prior to arbitration did not exclude interest from the province’s payment of compensation to T for the improvements. Finally, on an issue of statutory application, the arbitrator determined that T was not entitled to compensation for the improvements to which it did not lose access. On appeal, the application judge upheld the arbitrator’s award except in connection with the statutory application issue, which was remitted to the arbitrator and resulted in an additional award in an amount equal to the value of the improvements. A majority of the Court of Appeal reversed the application judge’s decision, finding that the arbitrator had erred on both the statutory interpretation and contractual interpretation issues, as well as in making his subsequent ruling regarding the statutory application issue. On remand for disposition in accordance with Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, a unanimous Court of Appeal held that its disposition of the appeal was unaltered by Sattva, reaffirming its conclusion that the issues ruled upon by the arbitrator are questions of law subject to appellate review, and that the arbitrator was in error regardless of the standard of review applied.
Held (Moldaver, Côté, Brown and Rowe JJ. dissenting in part): The appeal is allowed in part.
Per McLachlin C.J. and Abella, Karakatsanis, Wagner and Gascon JJ.: The Court of Appeal’s decision on remand cannot stand in light of Sattva. The process for characterizing a question as one of three principal types — legal, factual, or mixed — is well‑established, as confirmed in Sattva: legal questions are questions about what the correct legal test is; factual questions are questions about what actually took place between the parties; and mixed questions are questions about whether the facts satisfy the legal test. While the application of a legal test to a set of facts is a mixed question, if, in the course of that application, the underlying legal test may have been altered, then a legal question arises. Such a legal question, if alleged in the context of a dispute under the Arbitration Act, and assuming the other jurisdictional requirements of that Act are met, is open to appellate review. These extricable questions of law are better understood as a covert form of legal question — where a judge’s (or arbitrator’s) legal test is implicit to their application of the test rather than explicit in their description of the test — than as a fourth and distinct category of questions.
Courts should, however, exercise caution in identifying extricable questions of law because mixed questions, by definition, involve aspects of law. The motivations for counsel to strategically frame a mixed question as a legal question — for example, to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments — are transparent. A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings. Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question).
The characterization of a question on review as a mixed question rather than as a legal question has vastly different consequences in appeals from arbitration awards and civil litigation judgments. The identification of a mixed question when appealing an arbitration award defeats a court’s appellate review jurisdiction under the Arbitration Act. In contrast, the identification of a mixed question when appealing a civil litigation judgment merely raises the standard of review.
Given these principles as confirmed in Sattva, a question of statutory interpretation is normally characterized as a legal question. In contrast, identifying a question, broadly, as one of contractual interpretation does not necessarily resolve the nature of the question at issue. Contractual interpretation involves factual, legal, and mixed questions, and characterizing the nature of the specific question before the court requires delicate consideration of the narrow issue actually in dispute. In general, contractual interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contract law) to contractual facts (the contract itself and its factual matrix).
In the present case, the statutory interpretation issue, i.e. the issue of selecting a valuation method that complies with the Revitalization Act, involves two types of questions: (1) questions about the broad category of methods that are acceptable under the terms of the Revitalization Act; and (2) questions about the specific method, within that broad category of acceptable methods, that should ultimately be applied. The former questions — the methods that are acceptable under the Revitalization Act — are a matter of statutory interpretation and, accordingly, are questions of law. As a result, the courts have jurisdiction to review the arbitrator’s resolution of the issue in so far as that resolution involves identifying a pool of methodologies consistent with the Revitalization Act.
The latter questions — the preferable method among those that are consistent with the Revitalization Act — are inextricably linked to the evidentiary record at the arbitration hearing, where various experts opined on the virtues of conflicting valuation methodologies. They are mixed questions, if not pure questions of fact. Therefore, the courts lack jurisdiction to review the arbitrator’s selection of a specific methodology among the pool of methodologies which are consistent with the Revitalization Act.
As for the contractual interpretation issue, the courts have no jurisdiction to review the arbitrator’s decision in this regard. The arbitrator, after a lengthy and complex hearing, was best situated to weigh the factual matrix in his interpretation of the parties’ agreement regarding the payment of interest. The fact that he may have placed significant weight on that evidence in interpreting the agreement does not engage a legal question conferring jurisdiction on the courts under the Arbitration Act as it does not alter the underlying test he applied in this case. Further, the arbitrator’s interpretation was rooted in the words of the contract, not overwhelmed by them. While the arbitrator may have placed significant weight on the factual matrix when interpreting the meaning of “compensation”, there is no arguable merit to the claim that he interpreted that matrix isolated from the contract’s words so as to effectively create a new agreement.
Likewise, on the statutory application issue, the courts have no jurisdiction to review the arbitrator’s decision in this regard. The question implicated — whether the arbitrator correctly applied the valuation methodology to a licence — is a mixed question. As such, it is beyond the scope of appellate review.
It follows that the courts’ jurisdiction is limited to the statutory interpretation issue of identifying a pool of methodologies consistent with the Revitalization Act. The decision made on this issue was rendered in an arbitral context pursuant to the Arbitration Act. As confirmed in Sattva, the standard of review on legal questions arising from the arbitrator’s analysis of this statutory interpretation issue is reasonableness, which is almost always the applicable standard when reviewing commercial arbitration awards. This preference for a reasonableness standard dovetails with the key policy objectives of commercial arbitration, namely efficiency and finality. And this preference is not negated here in light of the nature of the question at issue and the arbitrator’s presumed expertise.
It would be an error to claim that all statutory interpretation by an arbitrator demands correctness review simply because it engages a legal question. In contrast, where the decision under review is, for example, a civil litigation judgment, the nature of the question is dispositive of the standard of review, with factual and mixed questions being reviewed for palpable and overriding error and legal questions — including extricable questions of law — being reviewed for correctness. It is therefore critical to bear these distinctions in mind when determining the appropriate standard of review in any given case.
The Court of Appeal erroneously held that the standard of review should be correctness for the statutory interpretation issue. Its decision appears to suggest that questions of law, such as statutory interpretation, necessarily attract a correctness standard of review. In so far as the Court of Appeal intended to make this suggestion, it is incorrect. While the nature of the question (legal, mixed, or fact) is dispositive of the standard of review in the civil litigation context, it is not in the arbitration context.
With respect to the review step of the analysis, the arbitrator’s determination that the depreciation replacement cost method was consistent with the Revitalization Act was reasonable. This decision fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, transparent, intelligible, and defensible. The claim that this method results in a windfall begs the question, i.e. it assumes that compensation equal to the value of all improvements is excessive in the course of explaining that excess. And the basis for claiming that excessive compensation was paid in this case is the assumption that it was inappropriate for the arbitrator to order compensation in excess of T’s actual costs, despite the absence of any reference in the Revitalization Act limiting T’s compensation to its actual costs or expenses. The full “value of improvements made to Crown land” is the language chosen by the legislature as the quantum for the compensation provision. If the provincial legislature had wanted to pay companies less than the “value of improvements made to Crown land”, it would not have set the amount of compensation “equal to” it. As a consequence, the arbitrator’s reasoning is hardly indefensible, particularly when the wording of the compensation provision so clearly fixes compensation at the specific amount chosen by the arbitrator. In the end, the legislature is entitled to provide forestry companies with statutory compensation that is not quantified on the basis of the nature of their interests in the Crown land at issue and the arbitrator’s interpretation of the compensation provision is accordingly entitled to deference.
Per Moldaver, Côté, Brown and Rowe JJ. (dissenting in part): Regardless of the applicable standard of review, the arbitrator’s interpretation of s. 6(4) of the Revitalization Act cannot stand. The only interpretation of s. 6(4) that withstands scrutiny on either standard of review is that T, as a licence holder, was entitled to receive compensation only for its limited interest in the improvements. In valuing the improvements under s. 6(4), the arbitrator was required to take into account that T, as a licence holder, did not own the improvements, which belonged to the Crown.
The plain and ordinary meaning of s. 6(4) is that T is entitled to be compensated on a basis that reflects its limited interest in the improvements as a licence holder. This plain meaning of s. 6(4) is consistent with the purpose of the Revitalization Act and its expropriation context. The Revitalization Act’s purpose is to reduce the rights of licence holders — specifically, their rights to harvest timber and use the improvements — and to provide licence holders with compensation for these reductions. As a result of the takebacks at issue, reductions were made to T’s rights to use the improvements — not ownership rights over such improvements. It runs counter to the purpose of the Revitalization Act to award T compensation that exceeds the value of what it lost due to the takebacks.
The cost savings approach applied by the arbitrator may be an appropriate methodology in the context of privately owned land. But the roads and bridges at issue in this case belonged to the Crown. Given that T did not own the improvements and had only a limited interest in the improvements as a licence holder, it cannot be said that it lost the replacement cost of the improvements when the province made reductions to the land base under its licences, nor can it be said that T would pay the full cost to replace the network of improvements at issue.
The arbitrator construed s. 6(4) of the Revitalization Act too narrowly in concluding that the distinction drawn by this provision between the value of the improvements and the value of the harvesting rights means that the market value of the tenure as a whole cannot be considered when determining the value of the improvements. There is nothing in the language or context of the Act to support this unduly restrictive reading of s. 6(4). On the contrary, it was open to the arbitrator to select any valuation method that could evaluate the value of the improvements to T as a licence holder, as long as the approach valued the improvements as separate and distinct from the harvesting rights.
The market value method was available to the arbitrator under s. 6(4) of the Revitalization Act, and yet the arbitrator chose to apply a method that was inconsistent with this provision. This resulted in a substantial windfall for T. The matter of compensation for the improvements relating to the three licences at issue should accordingly be remitted to the arbitrator for reconsideration.
Cases Cited
By Gascon J.
Applied: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; referred to: 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; Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306; Canadian National Railway Co. v. Canada (Attorney General), 2014 SCC 40, [2014] 2 S.C.R. 135; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23; Hayes Forest Services Ltd. v. Weyerhaeuser Co., 2008 BCCA 31, 289 D.L.R. (4th) 230; Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62; Black Swan Gold Mines Ltd. v. Goldbelt Resources Ltd. (1996), 78 B.C.A.C. 193; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; Catalyst Paper Corp. v. North Cowichan (District), 2012 SCC 2, [2012] 1 S.C.R. 5; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339; Toronto Area Transit Operating Authority v. Dell Holdings Ltd., [1997] 1 S.C.R. 32; Wilson v. Atomic Energy of Canada Ltd., 2016 SCC 29, [2016] 1 S.C.R. 770.
By Moldaver and Côté JJ. (dissenting in part)
CanadianOxy Chemicals Ltd. v. Canada (Attorney General), [1999] 1 S.C.R. 743; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., [1993] 3 S.C.R. 724; British Columbia (Forests) v. Teal Cedar Products Ltd., 2013 SCC 51, [2013] 3 S.C.R. 301; Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160; Diggon‑Hibben, Ltd. v. The King, [1949] S.C.R. 712; MacMillan Bloedel Ltd. v. British Columbia (1995), 12 B.C.L.R. (3d) 134.
Statutes and Regulations Cited
Arbitration Act, R.S.B.C. 1996, c. 55, s. 31.
Forest Act, R.S.B.C. 1996, c. 157.
Forest Planning and Practices Regulation, B.C. Reg. 14/2004, s. 79(2).
Forestry Revitalization Act, S.B.C. 2003, c. 17, ss. 6, 13.
Authors Cited
British Columbia. Legislative Assembly. Official Report of Debates of the Legislative Assembly (Hansard), vol. 13, No. 6, 4th Sess., 37th Parl., March 27, 2003, p. 5682.
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Hall, Geoff R. Canadian Contractual Interpretation Law, 3rd ed. Toronto: LexisNexis, 2016.
Mullan, David. “Unresolved Issues on Standard of Review in Canadian Judicial Review of Administrative Action — The Top Fifteen!” (2013), 42 Adv. Q. 1.
Shorter Oxford English Dictionary on Historical Principles, 6th ed. by Angus Stevenson. Oxford: Oxford University Press, 2007, “compensation”.
Todd, Eric C. E. The Law of Expropriation and Compensation in Canada, 2nd ed. Scarborough, Ont.: Carswell, 1992.
APPEAL from a judgment of the British Columbia Court of Appeal (Lowry, Chiasson and MacKenzie JJ.A.), 2015 BCCA 263, 70 B.C.L.R. (5th) 320, 373 B.C.A.C. 211, 641 W.A.C. 211, 386 D.L.R. (4th) 40, 115 L.C.R. 1, [2015] B.C.J. No. 1180 (QL), 2015 CarswellBC 1550 (WL Can.), affirming on remand a judgment of the British Columbia Court of Appeal (Finch C.J. and Lowry and MacKenzie JJ.A.), 2013 BCCA 326, 46 B.C.L.R. (5th) 272, 340 B.C.A.C. 256, 579 W.A.C. 256, 364 D.L.R. (4th) 465, 109 L.C.R. 276, [2013] B.C.J. No. 1480 (QL), 2013 CarswellBC 2059 (WL Can.), setting aside a decision of Bauman C.J., 2012 BCSC 543, [2012] B.C.J. No. 735 (QL), 2012 CarswellBC 1054 (WL Can.), which partially upheld an arbitrator’s decision. Appeal allowed in part, Moldaver, Côté, Brown and Rowe JJ. dissenting in part.
John J. L. Hunter, Q.C., Mark S. Oulton and K. Michael Stephens, for the appellant.
Karen A. Horsman, Q.C., Barbara A. Carmichael and Micah Weintraub, for the respondent.
The judgment of McLachlin C.J. and Abella, Karakatsanis, Wagner and Gascon JJ. was delivered by
Gascon J. —
I. Overview
[1] In British Columbia, the scope of appellate intervention in commercial arbitration is narrow in two key ways. First, there is limited jurisdiction for appellate review of arbitration awards because that jurisdiction is statutorily limited to questions of law (Arbitration Act, R.S.B.C. 1996, c. 55, s. 31). Second, even where such jurisdiction exists, our Court recently held that a deferential standard of review — reasonableness — “almost always” applies to arbitration awards (Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 75, 104 and 106). Together, limited jurisdiction and deferential review advance the central aims of commercial arbitration: efficiency and finality.
[2] The Province of British Columbia (“BC”) and a forestry company, Teal Cedar Products Ltd. (“Teal Cedar”), were unable to settle how much compensation BC owed to Teal Cedar for reducing the latter’s access to certain improvements on Crown land — such as roads and bridges — which it used to harvest timber. Consequently, their dispute was submitted to arbitration as required by the applicable legislation, the Forestry Revitalization Act, S.B.C. 2003, c. 17 (“Revitalization Act”). Teal Cedar, for the most part, won. Three questions arising from the arbitrator’s award are the subject of this appeal.
[3] First, there is a question of statutory interpretation: whether the arbitrator erred in selecting a valuation method that was allegedly inconsistent with the section of the Revitalization Act providing Teal Cedar with compensation. In my opinion, this is a question of law falling within the scope of appellate review permitted under the Arbitration Act. However, the arbitrator, who relied on the plain meaning of the statute prescribing that valuation, reasonably selected a suitable valuation method. Accordingly, I find that his award in this regard cannot be overturned.
[4] Second, there is a question of contractual interpretation: whether the arbitrator let the factual matrix overwhelm the words of the contract when he interpreted an amended settlement agreement between the parties in light of the factual matrix of their failed negotiations. This question may be formulated in two ways: (1) whether the arbitrator allocated excessive weight to the factual matrix; or (2) whether the arbitrator’s interpretation of the factual matrix was isolated from the words of the contract. The former formulation is a question of mixed fact and law and thus falls outside the scope of appellate review permitted under the Arbitration Act. The latter formulation, while it raises a question of law, lacks arguable merit in this case because the arbitrator’s interpretation was clearly anchored in the words of the contract, which he interpreted in light of the factual matrix. Without arguable merit, this formulation also fails to confer appellate review jurisdiction under the Arbitration Act.
[5] Third, there is a question of statutory application: whether the arbitrator erred in denying compensation to Teal Cedar relating to the improvements associated with one of its licences because it never lost access to those improvements, in contrast with the other licences where it lost such access. Teal Cedar’s licence for that area is referred to in these reasons as the Lillooet Licence. This question involves the application of a specific valuation methodology to the intricate facts before the arbitrator, which qualitatively distinguished the Lillooet Licence from the other licences in dispute. On that basis, I consider that this a question of mixed fact and law outside the scope of appellate review permitted under the Arbitration Act.
[6] As the Court of Appeal below reached the opposite conclusion on the first two questions, I would allow the appeal in part. Like the application judge, I would confirm the arbitrator’s award on these two questions. However, on the third question, like the Court of Appeal this time, I would restore the arbitrator’s original ruling that BC owed Teal Cedar no compensation relating to improvements for the Lillooet Licence.
II. Context
A. The Timber Licences and the Revitalization Act
[7] In British Columbia, forestry companies hold licences which regulate how those companies may harvest Crown timber. The appellant, Teal Cedar, is one such forestry company. Three of Teal Cedar’s licences are relevant to the current dispute, namely: (1) Forest Licence A19201 in the Fraser Timber Supply Area; (2) Tree Farm Licence 46 located on Vancouver Island; and (3) Forest Licence A18699 in the Lillooet Timber Supply Area (“Lillooet Licence”). In general terms, these licences entitle Teal Cedar to harvest timber and to use improvements, such as roads and bridges, to access timber.
[8] In 2003, the respondent, BC, enacted the Revitalization Act. This Act changed forestry companies’ rights under their licences by deleting areas from their land base and reducing the volume of their allowable harvest. In particular, Teal Cedar’s licences were affected as follows:
(a) The Fraser Timber Supply Area licence’s allowable harvest was reduced by 37,500 cubic metres and many of Teal Cedar’s chart areas were removed from the associated land base.
(b) The Vancouver Island licence’s allowable harvest was reduced by 130,637 cubic metres and many of Teal Cedar’s operating areas were removed from the associated land base.
(c) The Lillooet Licence’s allowable harvest was reduced by 48,078 cubic metres, but, unlike the other two licences, this licence never lost any areas in its associated land base.
[9] In response to these changes, the Revitalization Act provided compensation to forestry companies. The amount of that statutory compensation is at the heart of the dispute between BC and Teal Cedar. The relevant compensation provision is s. 6 and, in particular, subs. (4), which provides forestry companies with “compensation from the government in an amount equal to the value of improvements made to Crown land”:
Compensation
6 (1) Each holder of an ungrouped licence is entitled to compensation from the government for a reduction under section 2 (1) of the allowable annual cut of the ungrouped licence, in an amount equal to the value, for the unexpired portion of the term of the licence, of the harvesting rights taken by means of the reduction.
(2) Each holder of a timber licence is entitled to compensation from the government in respect of the part, if any, of a reduction in the area of Crown land described in the timber licence that is made under section 2 (2) and that is attributed under section 3 (1) to that licence in an amount equal to the value of the harvesting rights taken by means of the reduction.
(3) Each holder of a licence in a group of licences is entitled to compensation from the government in respect of the part, if any, of a reduction of the allowable annual cut of the licence that is made under section 2 (3) and that is attributed under section 3 (2) to that licence, in an amount equal to the value, for the unexpired portion of the term of the licence, of the harvesting rights taken by means of the reduction.
(4) In addition to the compensation to which the holder of an ungrouped licence, a timber licence or a licence in a group of licences is entitled under subsection (1), (2) or (3), the holder is entitled to compensation from the government in an amount equal to the value of improvements made to Crown land that
(a) are, or have been, authorized by the government,
(b) are not improvements to which section 174 of the Forest Practices Code of British Columbia Act applies, and
(c) are not, or have not been, paid for by the government under the Forest Act or the former Act as defined in the Forest Act.
(4.1) Subsection (4) also applies to a holder of a tree farm licence that is subject to a deletion of Crown land from the tree farm licence area under section 39.1 of the Forest Act, if the deletion
(a) is in respect of a reduction of allowable annual cut under section 3 (3) of this Act, and
(b) is made before the date this subsection comes into force.
(5) An entitlement to compensation under this section vests in the holder to which it applies on March 31, 2003.
(6) A dispute between the minister and the holder of an ungrouped licence, a timber licence or a licence in a group of licences as to the amount of the compensation to which the holder is entitled under this section must be submitted to arbitration under the Arbitration Act.
[10] Conceptually, s. 6 provides for two types of compensation, namely compensation for: (1) reductions to harvesting rights (“Rights Compensation”, provided for in subss. (1) to (3)); and (2) the value of improvements made to Crown land (“Improvements Compensation”, provided for in s. 6(4)).
[11] The Revitalization Act permits the Lieutenant Governor in Council to make regulations concerning, among other things, this compensation provision:
Regulations
13 (1) The Lieutenant Governor in Council may make regulations referred to in section 41 of the Interpretation Act.
(2) Without limiting subsection (1), the Lieutenant Governor in Council may make regulations
(a) defining a word or expression not otherwise defined in this Act, and
(b) for the purposes of section 6, prescribing respecting value, including but not limited to
(i) determining value and defining the components that comprise value,
(ii) prescribing methods of evaluation for use in determining value,
(iii) prescribing factors to be taken into account in an evaluation,
(iv) defining the role of evaluators in a determination of value and prescribing qualifications for evaluators that are prerequisite to their participation in the determination of value, and
(v) prescribing requirements for the selection of arbitrators.
Accordingly, while s. 6(4) of the Revitalization Act provides for Improvements Compensation “in an amount equal to the value of improvements made to Crown land”, s. 13(2)(b)(ii) anticipates regulations “prescribing methods of evaluation for use in determining” that value. However, neither at the time of the dispute nor at the time of the hearing before this Court had any regulations been passed prescribing those valuation methods.
[12] Lastly, in terms of process, s. 6(6) of the Revitalization Act provides that disputes relating to the amount of compensation BC owes to a forestry company must be submitted to arbitration. Again, the Revitalization Act permits the Lieutenant Governor in Council to make regulations “prescribing requirements for the selection of arbitrators” (s. 13(2)(b)(v)). As with the anticipated regulations concerning valuation methods, neither at the time of the dispute nor at the time of the hearing before this Court had any regulations been passed prescribing arbitrator selection requirements. Consequently, up until the time of the hearing before this Court, arbitrations regarding compensation under the Revitalization Act were presided over by arbitrators chosen by consent of the parties. There was no list of arbitrators limiting party autonomy in this respect.
B. The Dispute Between Teal Cedar and British Columbia
[13] Teal Cedar suffered compensable losses under the Revitalization Act. It negotiated the value of those losses with BC and the parties reached a partial settlement. They were able to settle the value of the Rights Compensation owed to Teal Cedar, but they were unable to settle the value of the Improvements Compensation.
[14] To confirm their partial settlement and provide guidelines for their ongoing negotiations, the parties executed a Settlement Framework Agreement. That agreement contained a “No Interest Clause”, which precluded interest payments to Teal Cedar:
No interest shall be payable by [BC] in respect to this or any other compensation that may be due to [Teal Cedar] under the [Revitalization Act].
(A.R., vol. I, at p. 225)
[15] Negotiations about the value of the Improvements Compensation were ultimately unsuccessful. Accordingly, 10 months after the Settlement Framework Agreement was first executed, the parties signed an amendment to that agreement (“Amendment”), resulting in a new agreement combining the Settlement Framework Agreement with the Amendment (“Amended Agreement”). The Amended Agreement provided that the parties were unable to agree on the proper amount of compensation, and thus, would submit the valuation of “compensation” to arbitration (“Arbitration Clause”):
[BC] hereby acknowledges that a dispute exists between the Parties and [Teal Cedar] intends to submit the dispute between the Parties as to the amount of the compensation for the Improvements to which it is entitled for arbitration pursuant to Section 6(6) of the [Revitalization Act].
(A.R., vol. I, at p. 228)
[16] As there were no regulations prescribing the requirements for arbitrators, the parties were free to choose who would preside over the arbitration. They ultimately selected Thomas Braidwood, Q.C., a former Justice of the British Columbia Court of Appeal.
III. Judicial History
[17] At the initial arbitration, there were two primary questions of interpretation, which have remained contested up to and including the appeal before this Court. Those questions of interpretation — one statutory and one contractual — are the following:
(a) What valuation methods for Improvements Compensation are consistent with the Revitalization Act? (“Valuation Issue”)
(b) Does the “compensation” for improvements submitted to arbitration under the Amended Agreement include interest? (“Interest Issue”)
[18] In addition, another question emerged concerning Teal Cedar’s entitlement to compensation for improvements losses relating to the Lillooet Licence (“Lillooet Issue”).
A. Arbitration Award (Thomas Braidwood, Q.C. — April 27, 2011, Amended June 30, 2011)
[19] On the Valuation Issue, the arbitrator had to determine the proper valuation method for Improvements Compensation because no regulations prescribing such a method had been passed. During a “lengthy and complex hearing” (as noted by the application judge, at para. 7), he was presented with three “generally recognized valuation approaches” (para. 112):
(a) the “Market Value Method”, which the arbitrator rejected because the method is based on determining the market value of the improvements, and BC’s own expert conceded that no such market value exists in respect of improvements on Crown land (para. 113);
(b) the “Income Method”, which the arbitrator similarly rejected because the method is based on determining the income generated by the improvements, and BC’s own expert conceded that no such income exists in respect of improvements on Crown land (para. 113); and
(c) the “Depreciation Replacement Cost Method”, which the arbitrator accepted (paras. 93-94). This method, in simplified terms, valuates Improvements Compensation by estimating the notional cost of rebuilding the improvements from scratch (replacement) to their current degraded condition (depreciation). The arbitrator accepted this method in part because it was the only valuation methodology presented which determined Improvements Compensation separately from Rights Compensation, in keeping with their separate treatment in the Revitalization Act (para. 94; see Revitalization Act, ss. 6(1) to (3) and 6(4)).
[20] On the Interest Issue, the arbitrator held that Teal Cedar was entitled to interest on the Improvements Compensation, despite the No Interest Clause, in light of the factual matrix. Specifically, he found that, at the time of the Settlement Framework Agreement, when the No Interest Clause was drafted, the parties were “hopeful” and in the midst of ongoing negotiations to resolve the Valuation Issue (para. 180). In contrast, at the time of the Amendment, when the Arbitration Clause was drafted, the parties had just endured 10 months of failed negotiations, and had come to terms with the need to resolve the Valuation Issue — including interest — through arbitration (para. 181).
[21] Lastly, on the Lillooet Issue, the arbitrator ruled that Teal Cedar was not entitled to Improvements Compensation for the Lillooet Licence because it “had not lost any opportunity to use the roads” (paras. 169-70). Put differently, the arbitrator opined that BC owed no Improvements Compensation to Teal Cedar for the Lillooet Licence since the latter never lost access to any improvements associated with that licence.
B. British Columbia Supreme Court (2012 BCSC 543, Bauman C.J.)
[22] The courts reviewing the Arbitration Award had the additional burden of addressing their jurisdiction to review the award in the first place (“Jurisdiction Issue”). Specifically, the arbitration proceeded under the Arbitration Act, which limits appeals to questions of law (s. 31). The courts reviewing the Arbitration Award were consequently confronted with the threshold issue of whether the Valuation, Interest and Lillooet Issues involved questions of law — the sole type of question over which the courts have appellate review jurisdiction in commercial arbitration cases. As additional context, this Court’s decision in Sattva — where we clarified the general characterization of contract interpretation as a question of mixed fact and law — was not released until after the first decision in this case by the British Columbia Court of Appeal. As a result, the decision of the British Columbia Supreme Court and initial decision of the British Columbia Court of Appeal were issued without this Court’s guidance in Sattva.
[23] On the Jurisdiction Issue, the application judge, Bauman C.J. (now Bauman C.J.B.C.), held that the Valuation Issue subsumed questions of law and questions of mixed fact and law. Specifically, the determination of whether the valuation method chosen was consistent with the Revitalization Act was a matter of “statutory construction” (para. 49 (CanLII)) and thus a question of law within his jurisdi