B.C. – questions of mixed fact and law by definition involve aspects of law

In Gormac Developments Ltd. v. Teal Cedar Products Ltd., 2020 BCSC 712, Madam Justice Elizabeth McDonald cautioned that great care be taken to distinguish between arguing that (i) a legal test has been altered in the course of its application and (ii) application of the legal test should have resulted in a different outcome. McDonald J. also acknowledged the need for caution when determining questions of law given that questions of mixed fact and law “by definition, involve aspects of law”.  In addition, an arbitrator is not required to refer to every submission, statutory provision or piece of jurisprudence in the award, there being no requirement to make specific findings on each constituent element for the award to be reasonable.

Gormac Developments Ltd. (“Gormac”) and Teal Cedar Products Ltd. (“Teal Cedar”) were bound by an April 7, 1992 road construction agreement (“Contract”).  Neither Gormac nor Teal Cedar was an original party to the Contract, having acquired respectively the interest of Interline Construction Ltd. and Fletcher Challenge Canada Ltd.  The Contract expired on December 31, 1993 but Gormac and Teal Cedar agreed to abide by the Contract pending entering into a new agreement.  They never did reach a new agreement.

In August/September 2015, Gormac and Teal Cedar undertook arbitration to resolve their dispute as to whether “road construction” included “road reconstruction” and “road rehabilitation”. That dispute arose because, over time, Teal Cedar harvested less old growth and more second growth timber within the tenure it held.  Teal Cedar’s efforts to access the second growth areas resulted in less new road construction and more road reconstruction and road rehabilitation work. 

Gormac learned that Teal Cedar used another contractor to perform road reconstruction and road rehabilitation.  Gormac argued that it was entitled to that work pursuant to the Contract.  Teal Cedar disagreed.  Teal Cedar asserted that road reconstruction and road rehabilitation were not included in the Contract, leaving Teal Cedar free to contract with other contractors for that work.

The dispute required the arbitrator to construe the Contract to decide if “road construction” included “road reconstruction” and “road rehabilitation” or only new road construction.  In the alternative, the dispute required Gormac to establish that the Contract qualified as a “replaceable” contract with the terms of a specific B.C. regulation governing the activity, Timber Harvesting Contract and Subcontract Regulation, BC Reg 22/96 (“Regulation”).

The arbitration resulted in a November 26, 2015 Final Partial Award (“Award”).  On the merits, the arbitrator determined that the Contract did not include replaceable road reconstruction or road rehabilitation work and that Gormac failed to establish that it was entitled to a replaceable contract for road reconstruction or road rehabilitation work.

Gormac applied January 22, 2016 for leave to appeal the Award on a question of law under section 31 of B.C.’s Arbitration Act, RSBC 1996, c 55.  Gormac argued that the arbitrator failed to: (i) properly interpret and apply the Regulation; (ii) consider the Contract as a whole; and, (iii) consider material evidence regarding the B.C. forestry industry.

McDonald J. dismissed Gormac’s application.  She determined that the grounds raised did not meet the requirements for granting leave, as recently stated in MSI Methylation Sciences, Inc. v. Quark Venture Inc., 2019 BCCA 448:

[54] Thus there are three distinct requirements that must be met before leave can be given to appeal an arbitration award:

(a) the appeal must be based on a question of law arising out of the award;

(b) the leave judge must be satisfied that one of the three circumstances identified in s. 31(2) of the Act exists; and

(c) the leave judge must be prepared to exercise the residual discretion implicit in the phrase “the court may grant leave … ”

See also para. 72 for the principles applicable for leave to appeal applications.  In addition, McDonald J. acknowledged the need for caution when determining questions of law given that questions of mixed fact and law “by definition, involve aspects of law”, referring readers to Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 para. 54 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 para. 45.

(i) alleged failure to properly interpret the Regulation (paras 22-35) – McDonald J. examined Gormac’s reproach to the approach taken by the arbitrator.  She observed that Gormac did not assert that that the arbitrator failed to consider an applicable statutory provision, with Gormac even agreeing that the arbitrator correctly identified the key statutory elements.  Gormac instead argued that the arbitrator erred in law in his application and interpretation of those statutory elements by applying the provisions in an individual manner to each of Gormac’s road construction obligations under the Contract.

McDonald J. dismissed this ground as eligible for appeal.  Examining the reasons set out in the Award, she held that Gormac did not raise a question of law.  Referring back to MSI Methylation Sciences, Inc. v. Quark Ventures Inc., 2019 BCCA 448 para. 72, she underlined that “[g]reat care must be taken to distinguish between arguments that a legal test has been altered in the course of its application, and one alleging that the application of the legal test should have resulted in a different outcome”.

McDonald J. further noted that “Gormac’s issue is really an argument that the application of the six-month threshold in the Regulation should have resulted in a different outcome”.

McDonald J. added that the question was “integrally tied to the facts of the case” and lacked the “level of generality required to make it a question of law”.  The alleged error was “too closely tied to the particular facts of the case to be considered an extricable question of law, or to have wider precedential value”. 

(ii) alleged failure to construe the whole of the Contract (paras 36-45) – McDonald J. considered the analysis provided by the arbitrator in the Award.  Despite Gormac’s disagreement with the arbitrator’s conclusions about the correct interpretation, she held that the arbitrator explained his reading of the Contract and the relevant evidence.  She found that the interpretation of the Contract was “inextricably bound up with the evidence about the parties’ original intentions and the rest of the factual matrix”.

[45] It is also important to note that the Arbitrator is not required to refer to every submission, statutory provision or piece of jurisprudence in his decision.  There is also no requirement for the Arbitrator to make specific findings on each constituent element for his decision to be reasonable:  Sattva, at para. 75, citing Newfoundland and Labrador Nurses’ Union v. Newfoundland & Labrador (Treasury Board), 2011 SCC 62 at para. 16”.

(iii) alleged failure to consider material evidence (paras 46-49) – Gormac alleged that the arbitrator ignored material and relevant expert evidence.  McDonald J. disagreed, pointing out that the arbitrator had considered it but determined that there was no material conflict in the parties’ expert evidence and that the evidence was “generally uncontroversial”.  She found no failure to consider relevant evidence.  “Rather, based on my reading of the Award, it appears that the Arbitrator considered the expert evidence and gave it little weight, as he was entitled to do”. 

In closing her reasons, McDonald J. underlined the privileged position the arbitrator had.  “I am mindful that the Arbitrator is best situated to weigh the factual matrix following a hearing and interpret a contract”.

urbitral note – First, McDonald J.’s decision is concise and direct.  Her fussless approach reflects the firm deference Canadian courts provide to awards issuing from consensual arbitration.  McDonald J. readily distinguished between valid and invalid approaches made by dissatisfied arbitral parties.  A valid approach argues that a legal test has been altered in the course of its application.  An invalid approach argues that the application of the legal test should have resulted in a different outcome.

Second, McDonald J. s emphasized as important that arbitrators are not required to refer to every submission, statutory provision or piece of jurisprudence or make specific findings on each constituent element for the award to be reasonable.

Third, when cautioning about how questions of mixed fact and law “by definition, involve aspects of law”, McDonald J. referred to the 2014 and 2017 Supreme Court decisions.  Her emphasis reminded practitioners that insisting on a legal issue was not, in and of itself, sufficient to force a question of mixed fact and law to pivot into a question of law.

The relevant paragraphs from those earlier decisions are worth reproducing in full:

Sattva Capital Corp. v. Creston Moly Corp.  – “[54] However, courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. Given the statutory requirement to identify a question of law in a leave application pursuant to s. 31(2) of the AA, the applicant for leave and its counsel will seek to frame any alleged errors as questions of law. The legislature has sought to restrict such appeals, however, and courts must be careful to ensure that the proposed ground of appeal has been properly characterized. The warning expressed in [Housen v. Nikolaisen, 2002 SCC 33 (CanLII), [2002] 2 SCR 235] to exercise caution in attempting to extricate a question of law is relevant here:

Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it is often difficult to extricate the legal questions from the factual. It is for this reason that these matters are referred to as questions of “mixed law and fact”. Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact” …. [para. 36]”

[55] Although that caution was expressed in the context of a negligence case, it applies, in my opinion, to contractual interpretation as well. As mentioned above, the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. 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. In the absence of a legal error of the type described above, no appeal lies under the AA from an arbitrator’s interpretation of a contract”.

Teal Cedar Products Ltd. v. British Columbia – “[45] 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 (Sattva, at para. 54; [Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 SCR 748], at para. 36). 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; Sattva, at para. 53), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question)”.

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