Michael Erdle writes about the anxiety an arbitrator experiences when courts review an award — and some of the things courts look at when they do — in his June 2018 Slaw column. For more of Michael’s Slaw columns on mediation and arbitration, visit the Slaw archive.
Michael Erdle looks at some of the difficult questions surrounding third party funding of arbitration in his February and March 2018 Slaw columns. Issues include confidentiality; third party liability for costs; and the potential for arbitrator conflicts of interest. For more of Michael’s Slaw columns, visit the Slaw archive.
Courts should not interfere with commercial arbitration decisions unless they are unreasonable, even if the court may not agree with the result.
So says the Supreme Court of Canada (SCC) in a unanimous decision released on August 1, 2014. Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53
The decision reinforces earlier cases in which the SCC recognized the autonomy of parties to enter into commercial arbitration and the deference courts must show to arbitration decisions.
The case also demonstrates how the long and expensive appeal process can frustrate to commercial intent of arbitration, to get a fair, speedy and final resolution of a simple contract dispute.
The agreement was entered into in January 2007 and the dispute arose later that year. The arbitrator made his award in December 2008. The case found it’s way to the British Columbia Supreme Court and Court of Appeal twice between 2009 and 2012– once on whether to grant leave to appeal, and again on the merits of the appeal. Both times, the lower court agreed with the arbitrator; both times the appeal court did not.
The case involved a dispute over the valuation of shares to be issued in payment of a finder’s fee on the acquisition of a mining property. The question before the arbitrator was a straightforward question of interpreting the wording of the contract and determining the amount of the finders fee. The arbitrator found in favour of the claimant. He said the contract gave the claimant the option to take the fee in cash or shares and the parties understood that the value of the shares could go up or down. The number of shares to be issued was based on their value when the fee was earned, not when the deal was announced some months later and the shares had gone up in value. Since the shares were never issued, the arbitrator awarded damages of $4,140,000.
The SCC rejected the notion that interpreting a contract is always a question of law. In most cases, it is a mixed question of fact and law, because a contract must be interpreted as a whole, in light of all of the surrounding circumstances. Beyond that, the court should exercise discretion in allowing appeals of arbitration decisions, even when there is a question of law.
The British Columbia Commercial Arbitration Act says leave may be granted on a question of law when:
(a) the intervention of the court is necessary to prevent a miscarriage of justice;
(b) the question of law is important to a larger class or body of persons; or
(c) the question of law is of general or public importance.
The words “may grant leave” mean the court can always refuse leave even when one of these criteria has been met.
According to the SCC, the B.C. Court of Appeal erred the first time around, when it reversed the lower court’s decision not to grant leave. The B.C. Court of Appeal also made a mistake the second time around, in reviewing the arbitrator’s decision on the basis of whether it was correct or not.
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, whether the arbitrator interpreted the Agreement as a whole, does not fall into one of those categories. 
The SCC reviewed the arbitrator’s decision and agreed with the B.C. Supreme Court that the arbitrator, interpreting seemingly conflicting clauses in the contract, “reasonably construed the agreement as a whole.” 
The arbitrator clearly understood the question to be decided, considered the applicable clauses in the contract and other evidence and came to a reasoned decision which interpreted the contract in light of all of the surrounding circumstances. Nothing in the agreement expressed or implied the alternative interpretation advocated by the respondent (and accepted by the Court of Appeal).
The arbitrator’s reasoning, … meets the reasonableness threshold of justifiability, transparency and intelligibility 
The decision is yet another strong endorsement of arbitrator independence by the Supreme Court of Canada. It will give commercial parties some assurance that their contracts will be enforced and that arbitration awards on those contracts will be from expensive and frivolous appeals.
For details of the lower court decisions see:
British Columbia Supreme Court leave decision: 2009 BCSC 1079 (CanLII)
British Columbia Court of Appeal leave decision: 2010 BCCA 239, 7 B.C.L.R. (5th) 227
British Columbia Supreme Court appeal decision: 2011 BCSC 597, 84 B.L.R. (4th) 102
British Columbia Court of Appeal decision 2012 BCCA 329, 36 B.C.L.R. (5th) 71
To see Sattva Capital’s announcement of the SCC decision and related comments on the case click here.
Like many, I was fascinated by the World Cup of Football (Soccer, to the North Americans) the past month.
Unlike most, I expect, I kept thinking about the lessons it offers for dispute resolution.
Here are just a few.
- Playing to Win vs. Playing to Not-Lose
The early round robin phase of the 2014 tournament was incredibly exciting, with lots of drama, goals scored, some upset victories and unlikely heroes (and goats). That’s because teams had to win to get to the next phase, and the number of goals for and against could be a deciding factor. So teams went all out to win and score goals. Winning one or two games was critical. Losing a match was not fatal (though losing two would be…). Simply tying every match was not good enough.
That all changed in the knockout round of 16 teams. Lose and you’re out. So the play became much more cautious and boring. Matches went into extra time, as teams tried to wear each other down and wait for a defensive error. Many ended up in a penalty shootout, which is a more or less random way to pick a winner. But that’s OK – the team that loses on penalties cannot really be blamed. Just look at Brazil’s 7-1 fiasco and Netherland’s 4-2 loss on penalties in the semi-finals. The Brazilians were devastated; the Dutch shrugged and said better luck next time.
In business, executives have no trouble shrugging off the loss of an important customer or contract and moving on to the next opportunity. They know that winning is more important than not losing.
But when it comes to a legal dispute, the fear of losing is much greater than the desire to win.
This is especially true for the lawyers. So the result is very defensive – and expensive – litigation and arbitration. Endless discoveries, thousands of documents to review, every motion hotly contested, trials, appeals – it goes on and on.
Everyone knows there are more cost effective ways to resolve disputes, through mediation or expedited arbitration. And in the end, the result is likely to be the same, at a far lower cost. This is especially true in the commercial world. Most businesses will have many smaller disputes; rarely a single “bet-the-company” case.
But the business mindset – like the risk-taking play in the open round of the World Cup – quickly gives way to the legal mindset – like the defensive play in the knockout stage.
- Quality Wins
As usual, there was lots of melodrama, play-acting and diving in the World Cup. Some teams and players are better than others, but they all do it.
The surprising thing is how rarely the umpires are taken in, although they rarely called anyone for diving. (I believe the only yellow card for diving was in the Brazil-Netherlands consolation match, long after it ceased to matter.) But I loved watching umpires smile and shake their heads when a player went down in overly dramatic fashion. “Play on,” they said. And the players did.
Occasionally, an official is taken in and awards a yellow card or penalty shot. But it rarely affects the outcome of a match. In the end, good tactics and team play beat fakery.
The same is true in legal disputes. Exaggerated claims, dissembling and cover ups may appear to confer short-term tactical advantages (procedural victories, pressure to settle, etc.) but in the end the real advantage in mediation and arbitration lies with the party that has facts and law on its side.
Spend time on making the most of those advantages – and dealing with the real flaws in a case – not on shirt-tugging, diving and yapping at the umpire.
- It’s a Team Sport
Lionel Messi may be the greatest football player in the world and the winner of the Golden Ball as most valuable player in the World Cup. But Argentina came up short because the team behind him was not deep enough.
Germany has its share of stars and talent, but they also played a total team game at every position.
Winning the game of dispute resolution – getting the best result for your side – is also a team effort. Hiring the best (or most expensive) attorney won’t guarantee success. Nor will the most renowned expert witnesses. Everyone involved in a dispute – the parties, witnesses, support staff, professional advisors – must put forth their best efforts to present the strongest possible case.
Quick settlement, successful mediation or winning at trial or arbitration – it doesn’t matter – most of the time, the stronger team will win.
It was true at the World Cup and it’s true in dispute resolution.
“We are constructing an Internet of Things infrastructure that optimizes collaboration, universal access and inclusion…”
– Jeremy Rifkin, author of “The Zero Marginal Cost Society”, writing in the New York Times, March 16, 2014
Rifkin argues that the “Internet of Things” – what he calls the Third Industrial Revolution which includes technology such as 3D printers, as well as smart sensors, electrical grids, logistics networks, and recycling programs – enables millions of people to use social media and online networks to make, access and use physical goods such as toys, tools, cars, even homes, at a very low marginal cost. He says this will have a more profound effect on the capitalist economy than the original Internet, which enabled people to make and exchange ideas and intellectual property (e.g. digital books, movies, music). [Read more…]
The collapse of the Nortel bankruptcy mediation in January demonstrates once again that parties to complex commercial disputes can be just as irrational as the parties in any other conflict.
If there was ever a dispute where rational self-interest would argue in favour of a negotiated settlement, this is it. News that the mediation had been terminated, caused the value of Nortel bonds to drop by $67 million (4% of their value) while former employees, pensioners and other stakeholders were no closer to getting the money they are owed. [Read more…]
Mediator Scot Beckenbaugh played a pivotal role in settling the NHL lockout earlier this month. Accounts of his role in opening lines of communication, restoring an element of trust and co-operation and helping the parties work out critical elements of the final deal provide an excellent case study of the role a neutral facilitator or mediator can play in any difficult contract negotiations. Read more about Mr. Beckenbaugh’s work on the CBC website and in the Globe and Mail online (here and here).
Toronto is beginning to win recognition as an attractive venue for international commercial arbitration.
A recent report in the Financial Post, says that arbitration is a $256.3-million boost to the city economy in 2012. The article cites a study commissioned by Arbitration Place and conducted by Charles River Associates which found that this number is expected to grow by about 6.6% in 2013. The study found that about 14% of the arbitrations conducted in the city were international disputes, but the economic activity generated by the typical international case – mainly fees charged by arbitrators, lawyers and expert witnesses – was about five times the amount generated by a domestic arbitration. [Read more…]