In Sattva Capital Corp. v. Creston Moly Corp., the Supreme Court of Canada has reinforced the finality of domestic arbitration awards by limiting the types of issues that can be considered questions of law.
The case involved a dispute about a finder’s fee payable in connection with the acquisition of a mining property in Mexico. Creston, a company whose shares traded on the TSX Venture Exchange (TSXV), entered into an agreement to purchase the property on January 30, 2007 and the next day asked that its shares be cease traded. It announced that it intended to complete the transaction on March 26, 2007, at which point its shares began trading again. The transaction closed on May 17, 2007.
Sattva had introduced Creston to the property in return for a finder’s fee equal to the maximum amount that could be paid under the TSXV’s policies or C$1.5 million. Unless Sattva elected otherwise, the fee was payable in Creston shares.
The dispute arose when Sattva and Creston could not agree upon which date should be used to determine the price of the Creston shares and thus the number of shares payable. Sattva contended that the proper date was January 31, 2007, the date on which Creston had asked that trading in its shares be halted. Creston submitted that the proper date was after the transaction closed in May 2007. The point was important since the price at which the shares traded increased significantly after Creston announced its intention to make the purchase. Based on his interpretation of the agreement between the parties, the arbitrator held that the price should be determined as of January 31, 2007, the last day on which the shares had traded prior to the transaction’s announcement.
B.C. COURT OF APPEAL DECISION
Creston appealed the arbitrator’s decision under the provisions of the British Columbia Commercial Arbitration Act (now the Arbitration Act), which allowed appeals on questions of law with leave. The case wound its way through the courts of British Columbia, with the Court of Appeal eventually granting leave to appeal the decision on the basis that the arbitrator’s interpretation of the agreement involved a question of law, and then holding that his interpretation created an “absurd result.”
Previous decisions relied on by the Court of Appeal provided that the ultimate determination of the legal rights and obligations of the parties under a written contract was a question of law.
The Supreme Court held that this approach should be abandoned. Contractual interpretation involved mixed questions of fact and law given that it is an exercise in which the principles of contractual interpretation are applied to the words of a written contract in light of the contract’s factual matrix. While there may be situations in which a question of law could be isolated from that exercise, they will be rare.
Although not necessary for its decision, because it only rarely had the opportunity to address appeals of arbitral awards, the Supreme Court went on to consider the standard of review to be used on appeals from an arbitrator’s decision, holding that unless the question of law involved constitutional questions or questions of law of central importance to the legal system as a whole and outside the arbitrator’s experience, the standard of review was “reasonableness” rather than the more stringent “correctness” standard. In doing so, the Supreme Court noted the differences between the commercial arbitration process and the process applicable to statutory tribunals; for example, the fact that parties engage in arbitration by mutual choice rather than by way of a statutory process.
The Supreme Court’s decision in Sattva will reduce the avenues for challenging the domestic commercial arbitration awards by eliminating contractual interpretation challenges from the ambit of decisions open to appeal. It will also make appeals that deal with questions of law that much more difficult by requiring appellants to show that the arbitrator’s decision on the question of law was unreasonable, not just incorrect. In doing so, the Supreme Court has reinforced the finality of the arbitral process.