B.C. court rules on correct standard of review of arbitral decision with statutory appeal mechanism

In a case involving an assailed arbitral award with a statutory appeal mechanism, the Supreme Court of British Columbia has opted to apply the reasonableness standard of review based on stare decisis.

In Spirit Bay Developments Limited Partnership v Scala Developments Consultants Ltd., 2021 BCSC 1415, an arbitrator appointed by the parties under the Arbitration Act, RSBC 1996, c 55 issued an 82-page award finding the petitioners indebted to the respondent for over $1.7 million in damages

for the respondent’s construction work on a real estate development on Vancouver Island.

In October 2020, the petitioners sought court orders to set aside the arbitrator’s award or remit the award for reconsideration by another arbitrator or obtain leave to appeal the award under s. 31(1)(b) of the Arbitration Act on the ground that the arbitrator had committed 17 errors of law.

In November 2020, the Supreme Court of British Columbia granted the petitioners leave to appeal the arbitrator’s award concerning three alleged errors of law: first, whether the arbitrator appropriately resorted to subsequent conduct without first finding ambiguity in the contract; second, whether the arbitrator appropriately applied a commercial reasonableness test to interpret the contract; and third, whether the arbitrator appropriately applied unjust enrichment.

In Spirit Bay, the B.C. Supreme Court first considered whether the standard of review of arbitral decisions with a statutory appeal mechanism should be reasonableness or correctness. The court ruled that the stare decisis principle required the application of the reasonableness standard in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 and in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688, even though Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 left open the question of the standard of review applicable to arbitral decisions under s. 31 and thus permitted some uncertainty in administrative law to continue.

The court then, tackling the first two alleged errors of law together, determined that the arbitrator had indeed erred in his application of contract interpretation principles in both ways alleged. The court found that the arbitrator improperly relied upon the parties’ subsequent conduct despite not finding ambiguity and improperly imported “commercial reasonableness” concepts. The court, however, disagreed with the submission that these errors in contract interpretation would justify wholly or partly setting aside the arbitral award.

As for the third alleged error of law, the court determined that the award in connection with certain invoices should be set aside. The court made that determination because the arbitrator improperly applied the law of unjust enrichment to the disputes at hand, subject to certain exceptions and because the arbitrator’s conclusions did not fall within the range of possible acceptable and defensible outcomes.

The court concluded that the evidence needed to address certain legal and factual complexities, including the erroneous application of unjust enrichment principles, should be reheard, with some specific matters to be reheard by a different arbitrator. Other findings of the arbitrator, including those in connection with price increases and the status of work done on each house, need not be reheard, the court said.