Authors
Partner, Disputes, Vancouver
Associate, Disputes, Vancouver
Arbitration and alternative dispute resolutions, already popular mechanisms for efficient and confidential dispute resolution, have only grown in popularity since the beginning of the COVID-19 pandemic. Arbitration can be an attractive option for commercial parties as it is more informal, private, and flexible than litigation.
If parties are dissatisfied with a commercial arbitrator’s decision, the Arbitration Act (British Columbia) allows limited grounds for appeal. The B.C. Court of Appeal (the BCCA) recently clarified when leave may be granted to appeal a commercial arbitration decision. The decision underscores the Court’s reluctance to interfere with arbitrators’ decisions, absent a compelling indication the arbitrator made an error of law that materially affected their decision. That error of law, however, may include matters of fact: misconceiving evidence, as the Court found the arbitrator may have done in this case, is an error of law that may justify granting leave to appeal.
Escape 101 Ventures Inc. v March of Dimes Canada, 2021 BCCA 313
In Escape 101 Ventures, the BCCA provides an excellent summary of the test and legal principles to apply when a party wishes to appeal an arbitration decision. The Court specifically addresses appeals on issues of contractual interpretation.
The appellant (Escape 101 Ventures Inc.) had signed an agreement to sell its business to the respondent (March of Dimes Canada). The agreement included an “earnout” clause, which provided that the respondent would pay the appellant a percentage of some revenues earned over time. The parties disagreed on the interpretation of the earnout provision and whether certain payments were due.
A commercial arbitrator determined the earnout provision was unclear and decided that evidence of post-contractual conduct supported the respondent’s interpretation of earnout calculations.
The appellant applied to the BCCA for leave to appeal the arbitrator’s decision.
Legal test
The test begins with s. 59 of the Arbitration Act (British Columbia), which provides that:
- A party may appeal an arbitration award on any question of law, with consent of the other arbitration parties, or with leave of the court.
- A party may not seek leave to appeal if the arbitration agreement expressly restricts it.
- Leave to appeal may be granted if:
- the importance of the arbitration to the parties justifies court intervention, and determining the point of law may prevent a miscarriage of justice;
- the point of law is of importance to some class or body of persons of which the applicant is a member; or
- the point of law is of general or public importance.
Next, the BCCA summarized how this standard for leave to appeal will be applied to contractual interpretations:
- To appeal an arbitrator’s decision based on contractual interpretation, there must be an “extricable question of law”.
- An extricable question of law may arise when an arbitrator:
- uses an incorrect legal principle
- fails to consider an element of a legal test
- fails to consider a relevant factor, or
- has forgotten, ignored, or misconceived evidence
- An extricable question of law may also arise in other circumstances the Court chose not to address.
Lastly, the BCCA stated that even where there is an error of law, the error must have materially affected the result of the arbitration to hear an appeal.
Leave to appeal decision
In Escape 101 Ventures, the BCCA granted the appellant leave to appeal the arbitrator’s decision on one narrow issue. The Court found the arbitrator may have misconceived evidence — specifically, by overlooking the existence of any evidence on one issue — in a manner that materially affected his conclusions when interpreting the earnout provision. Accordingly, this gave rise to an extricable question of law and grounds for an appeal.
The BCCA rejected the appellant’s motion for leave to appeal on other grounds, however, finding that the arbitrator had correctly applied principles of contractual interpretation and that the arbitrator had not misapprehended the appellant’s position (without deciding that such a misapprehension could give rise to an appealable question of law).
Importance
In Canada, arbitration is a popular dispute resolution mechanism for business acquisitions, shareholder’s agreements, technology and licensing agreements, and other commercial contracts. Often, disputes are focused on issues of contractual interpretation. The BCCA’s reasoning in this case helps parties anticipate the circumstances in which they may be permitted to appeal an arbitrator’s contractual interpretation and serves as a reminder that factual issues can still give rise to appealable questions of law.
arbitration, "alternative dispute resolution", "commercial contracts", "earnout provision", "business acquisitions", "shareholders agreements", "technology and licensing agreements"
