To a certain degree, contract disputes are inevitable during the life of an organization. What effect does a particular clause have? Who is responsible if something goes wrong? How much money is owed? The answers to these questions may seem obvious to both parties when the contract is drafted, but that can change over time and with certain events. This is where commercial arbitration comes in.
Commercial arbitration is meant to provide disputing parties with a relatively quick and inexpensive way to resolve a disagreement. This is why most contracts will include a clause sending any dispute to binding arbitration. However, a problem arises when the unsuccessful party disagrees with the arbitrator’s decision and tries to appeal it to the courts.
This is where the law has now changed. On August 1, 2014, the Supreme Court of Canada dealt with the appeal of a commercial arbitration decision involving the interpretation of a “finder’s fee” clause. In this case, Sattva Capital Corp v Creston Moly Corp, the Supreme Court made two significant changes to the law.1
Appeals Are Now Limited
The Supreme Court found that appeals of commercial arbitration decisions should rarely be heard. The Court explained that appeals should generally be reserved for legal issues with a broad impact. Though contract interpretation was traditionally seen as more of a legal question, the Court moved away from this approach.
Instead, the Court emphasized that contract interpretation should be seen as largely fact-based, focusing on the specific circumstances of the parties and their intentions. This is especially the case in the commercial context, where the parties are usually more sophisticated. This makes appeals rarer because factual determinations by an arbitrator are given a high level of deference by appellate courts.
The effects of this decision will vary between provinces. For example, in British Columbia, a commercial arbitration decision can only be appealed on a legal question.2 In Ontario, however, it depends on the contract itself – parties can decide to restrict appeals to legal questions or open it up more broadly.3
When Heard, Appeals Are Now Harder To Win
In cases where a court hears an appeal of a commercial arbitration decision, it is now less likely to be overturned. Before the Sattva decision, courts would put themselves into the shoes of the arbitrator and determine what decision should have been made. Now, courts will review the decision to see whether it falls within a range of reasonable and acceptable outcomes. This means that even if the appellate court would have decided differently in the arbitrator’s shoes, it can only overturn the decision if it was an unreasonable one.
Recommendations For Organizations
With a greater focus on the factual circumstances surrounding contracts and the limited right to appeal an arbitrator’s decision, there are two prudent steps that can be taken to plan ahead:
1. Seek Legal Advice When Drafting Contracts
Though this may seem counterintuitive when we just explained that contracts are less of a legal issue and more of a factual one, it is now even more important to seek legal advice when drafting contracts. Lawyers can assist in ensuring that contracts are clear and unambiguous. This will make it more likely that a dispute will be either prevented, or resolved in your favour if the issue proceeds to arbitration.
2. Pick Your Arbitrator Carefully
When bringing a dispute to arbitration, it is now very important to recognize that the arbitration is likely the only chance to be heard. Arbitrations are unique in that the parties get to select who hears the case, so take extra care when picking the arbitrator, as he or she will likely have the last word on the dispute.