BC Court of Appeal rules on res judicata in arbitration proceeding

In a recent construction dispute, the BC Court of Appeal has ruled on the issue of res judicata in an arbitration proceeding.

In Bollhorn v. Lakehouse Custom Homes Ltd., 2023 BCCA 444, an arbitrator heard a dispute between Robert Bollhorn as buyer and Lakehouse Custom Homes as builder and seller on alleged deficiencies in constructing a house in Kelowna, BC. The arbitrator ultimately ruled that the doctrine of res judicata barred the dispute between the parties.

Bullhorn appealed to the BC Court of Appeal, challenging the arbitrator's finding that the arbitration proceeding was barred by res judicata. Bullhorn also argued that the arbitrator was wrong in law in finding that the doctrine of res judicata applied to his notice to arbitrate.

On the other hand, Lakehouse contended that the proposed appeal was barred because of the combined effect of the Arbitration Act and the Vancouver International Arbitration Centre's Domestic Rules for Arbitration—Expedited Procedure, prohibiting appeals from an "award" in a dispute valued at less than $250,000 in the absence of an agreement to the contrary. The parties' dispute had a value of approximately $95,000.

The dispute arose from a contract made on February 18, 2021, for constructing and purchasing a residence in Kelowna. The agreement provided that any disputes regarding deficiencies would be settled through arbitration, as per the British Columbia Arbitration Act.

During the construction phase, several orders were issued directing changes in the contract's specifications. The conflict escalated until Lakehouse claimed it was not obligated to complete the sale. In response, Bollhorn sought specific performance in the Supreme Court of British Columbia. The court ruled in Bollhorn's favour and ordered completion within 90 days.

However, Bollhorn identified deficiencies during a pre-completion walk-through and sought arbitration to address them. The arbitrator dismissed the proceeding, citing the doctrine of res judicata.

The appeal court noted that the Arbitration Act restricts the involvement of courts in arbitration proceedings conducted in BC. The appeal court acknowledged that the parties, through their submissions, have revealed "a lacuna in the domestic arbitration scheme." The court said that if Bollhorn was correct that the application of res judicata was an error of law, and Lakehouse was right that the decision could not be appealed, Bollhorn's claim under his contract would not have been heard on its merits, contrary to the expectation implicit in the contract's arbitration clause.

The court further explained that no other forum might be available to Bollhorn because the contract assigns the dispute exclusively to arbitration. Ultimately, the single judge of the appeal court referred the case to a division of the court.