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.