The Supreme Court of Canada has just decided to hear a commercial arbitration case arising from a finder’s fee dispute in the mining industry. The legal issues in the appeals — plural — go to the heart of the relationship between private commercial arbitration and Canadian courts.
In commercial cases, there is no right to appeal to the Supreme Court of Canada. You have to ask for permission. Panels of three Justices grant “leave to appeal” in cases of “public importance” where the circumstances warrant a decision by the court. They almost never provide reasons, so observers have to read the lower courts decisions (and the lawyers’ arguments if they’re available) to see what the issues are.
The merits of this particular case are compelling, but so is the way this case came to the Supreme Court. A commercial arbitrator in British Columbia made an award in late 2008. Twice the BC Court of Appeal overruled the BC Supreme Court, once on whether the courts should hear an appeal from the award at all and once on its merits of that appeal. Ultimately, in 2012, the arbitrator’s award was overturned.
The Supreme Court of Canada will hear appeals from both of the Court of Appeal decisions. This is unusual and bodes well for what the Court will eventually address in its reasons for judgment.
The case concerns a finder’s fee claimed by Sattva Capital Corp. for introducing Creston Moly Corp. to a mining deposit in Mexico. Creston acquired the deposit so Sattva earned the finder’s fee. By agreement, the fee could be cash or Creston shares, at the option of Sattva, subject to an agreed maximum of $1.5 million under TSX Venture Exchange policy. For this acquisition, the cash value was $1.5 million. Because the shares rose in value between the agreed “Market Price” date (immediately prior to the announcement of the acquisition) and the agreed date of payment (after closing), the transfer of shares was worth far more than $1.5 million at later market prices.
The arbitrator ruled for Sattva, awarding damages of $4.1 million. Creston requested leave to appeal to the BC courts in 2009. It was turned down because there was no pure question of law to appeal, a requirement under BC legislation. The chambers judge also declined to exercise his discretion to grant leave to appeal due to the arbitrator’s findings of misconduct by Creston (failing to disclose all the facts to the TSX). The judge further held that granting leave would be inconsistent with one objective of BC commercial arbitration legislation: to foster and preserve the integrity of the arbitration system.
On appeal #1, the Court of Appeal in 2010 found a question of law (the interpretation of the parties’ agreement), decided that the alleged misconduct was not relevant and overruled the judge’s discretionary conclusion due to the possibility of a “miscarriage of justice”. That miscarriage related to the payment of shares worth far more than the allowed maximum $1.5 million, which the court termed an “anomaly” that was not mentioned by the arbitrator.
Back to the BC Supreme Court. In 2011, a different judge dismissed the appeal from the Arbitrator’s award on the question of law. He found nothing inconsistent with the parties’ agreement to permit shares of a greater value to be transferred after closing. Crestor again appealed, and the BC Court of Appeal again overruled the lower court. A different three-judge appeal panel concluded last summer that the judge was bound by the first appeal panel’s findings and got the result wrong in law.
On the merits, the case turns on whether the agreed maximum finder’s fee limits the consideration paid by shares, when those shares have risen in value between the Market Price date agreed, and the actual payment date after closing.
As interesting and as important as that issue is, to the parties, to the mining industry and to TSX Venture Exchange companies, it was likely not enough to convince the Supreme Court to take the case. The two lower court reversals and overruling of the award by the appeals court will have attracted attention, as would the delay from the award in late 2008 to appeal #2 in 2012. But even that was likely not enough.
Fortunately for Sattva (and the rest of us), the appeals also squarely raise fundamental issues about the relationship between the public courts and private commercial arbitration. Put generally, they include:
- When can the Court of Appeal interfere with a judge’s exercise of discretion not to grant leave to appeal from a commercial arbitration award?
- When should the courts overrule an arbitrator on the merits and when should they defer to the tribunal’s findings?
- Are findings by a Court of Appeal, on an application for leave to appeal, binding on the judge who later hears the merits of the appeal?
- Was the interpretation of the agreement in this case a question of law, or a question of mixed law and fact?
These are issues that will affect the prospects for appeal from commercial arbitration awards in BC and for appeals (and applications for leave) on questions of law from arbitral awards in many other provinces.
We’ll see what the outcome is, likely in early 2014. Whatever that result, the Court made a great decision late last week when it granted leave to appeal — in both appeals.