COURT OF APPEAL FOR BRITISH COLUMBIA
| Citation: | Greata Ranch Holding Corp. v. Concord Okanagan Developments Ltd., |
| 2019 BCCA 304 |
Date: 20190822
Dockets: CA45400; CA45420
Docket: CA45400
Between:
Greata Ranch Holding Corp. and Greata Ranch Development Corporation
Appellants
(Petitioners)
And
Concord Okanagan Developments Ltd., The Crestmark Developments Limited Partnership and One West Holdings Ltd., formerly known as Concord Pacific Group Inc.
Respondents
(Respondents)
– and –
Docket: CA45420
Between
The Crestmark Developments Limited Partnership
Respondent/
Appellant on Cross Appeal
(Petitioner)
And
Greata Ranch Developments Limited Partnership, Greata Ranch Holdings Corp. and Concord Okanagan Developments Ltd. in their capacity as general partners of the Greata Ranch Developments Limited Partnership, and Greata Ranch Development Corporation in its capacity as limited partner of the Greata Ranch Development Limited Partnership
Appellants/
Respondents on Cross Appeal
(Respondents)
Sealed in Part pursuant to the
Order of Mr. Justice Fitch, issued March 28, 2019
| Before: | The Honourable Mr. Justice Willcock
The Honourable Mr. Justice Fitch The Honourable Mr. Justice Abrioux |
On appeal from: an order of the Supreme Court of British Columbia, dated June 7, 2018 (Greata Ranch Holding Corp. v. Concord Okanagan Developments Ltd., 2018 BCSC 931 (CanLII), Vancouver Docket S176664; and The Crestmark Developments Limited Partnership v. Greata Ranch Developments Limited Partnership, 2018 BCSC 932 (CanLII), Vancouver Docket S177033).
| Written Reasons by: |
| The Honourable Mr. Justice Willcock |
| Concurred in by: |
| The Honourable Mr. Justice Fitch
The Honourable Mr. Justice Abrioux |
Summary:
Two parties to a commercial contract, Greata and Concord, challenge a chambers judge’s decision granting and denying leave to appeal a question of law arising from anarbitration award interpreting that contract. Greata submits the chambers judge erred by denying it leave to appeal the award on the question of whether the arbitrator erred in law by ignoring the phrase “in accordance with and proportionate to the schedule of payments of fees and costs set out in the Budget”. Greata also submits the chambers judge erred by granting Concord leave to appeal the award on the question of whether the arbitrator erred in law by ignoring relevant provisions of the Partnership Act. Concord submits the chambers judge erred by denying it leave to appeal the award on the question of whether the arbitrator erred by ignoring the phrase “at the Interest Rate”. Held: Greata’s appeals dismissed; Concord’s appeal allowed. The arbitrator did not ignore the phrase Greata identifies, but rather interpreted that phrase in light of the parties’ conduct by proceeding without adopting a Budget that had such a schedule. The arbitrator did not consider the potentially-relevant sections of the Partnership Act and the pleadings do not show Concord ought to have identified those sections at the arbitration. The arbitrator does not appear to give any effect to the words “at the Interest Rate” despite acknowledging their applicability, thus raising a potential extricable error of law.
Reasons for Judgment of the Honourable Mr. Justice Willcock:
[1] These appeals arise from decisions made by a chambers judge on applications for leave to appeal arbitration awards. They require us to consider the grounds upon which the chambers judge exercised or might have exercised his discretion pursuant to s. 31 of the Arbitration Act, which provides that a party to an arbitration may appeal to the court on any question of law arising out of the award, with leave, if the court determines:
(a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,
(b) the point of law is of importance to some class or body of persons of which the applicant is a member, or
(c) the point of law is of general or public importance.
[2] The scope of this provision was considered by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), and again in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), and by this Court, recently, in Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd. 2019 BCCA 66 (CanLII). In the latter case, Newbury JA observed:
[4] With respect to standard of review, the Supreme Court in Sattva and Teal Cedar suggested that a standard of reasonableness (as explained in Dunsmuir v. New Brunswick 2008 SCC 9 (CanLII)), now the norm in administrative law, applies to all questions of law on appeal in commercial arbitrations, unless “the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole.” (See Sattva at para. 106; TealCedar at para. 74.) Since the Court in Sattva also decided that in future, questions of contractual interpretation were to be regarded as questions of mixed fact and law, only a very small window for appellate review of arbitral decisions remains.
[3] The arbitration in the case at bar addressed competing claims under contracts to develop a vineyard on the west side of Okanagan Lake for residential and commercialuse. The project was structured as a Limited Partnership between the landowner (Greata Ranch Development Corporation, “Greata”) and its affiliate, and a developer (Concord Okanagan Developments Ltd., “Concord”) and its affiliate.
[4] Greta and Concord and their affiliates entered into a Limited Partnership Agreement on January 30, 2007 (the LPA) pursuant to which the partnership purchased the lands from Greata.
[5] The partnership entered into a Project Management Agreement on February 6, 2007 (the PMA) with a project manager affiliated with Concord, One West Holdings Limited (“One West”). The Agreement set out the terms and schedule upon which the development would proceed.
[6] The project encountered difficulty, leading to delay in completion of the planned phases of development and, ultimately, the disputes addressed at arbitration.
One West project costs (DCA 1349)
[7] In December 2011, One West delivered an invoice to the partnership for project costs of approximately $6.6 million. Greata took the position the partnership could not be charged any amount by One West pursuant to the PMA until and unless the project was abandoned or suspended.
[8] The provision of the PMA permitting One West to claim payment for services rendered on account of work abandoned or suspended (s. 9.1) provides that payment will be made “in accordance with and proportionate to the schedule of payments of fees and costs set out in the Budget”.
[9] Section 7.1 of the PMA provides:
Concurrently with the execution of this agreement One West shall submit a Budget for the development, aggregating the total cost of completing the development, including Project Costs and Concord Costs. The Budget shall set out in separate line items the various parts of the development and attribute a monetary value to each line item include a projected net income/expense statement.
[10] One West and the Partnership were required by the PMA to “act diligently and reasonably to come to a final agreement on the Budget” within 15 business days of its execution. No Budget was ever adopted. The arbitrator attributed this in part to the fact some architectural designs had not reached the stage at which cost estimates could be made.
[11] Even though a Budget had not been agreed upon, the parties continued to work on the development. On February 19, 2007, One West provided the Management Committee with its summary revenue, cost and profit projections for the project as whole and a more detailed ‘cash flow to sales’ estimate for Phase 1 projecting costs to the expected commencement of presales. By July 2007, One West had incurred costs it estimated at $3.7 million. Thereafter One West incurred additional project costs of approximately $3 million.
[12] Following receipt of the December 2011 invoice, Greata advised One West it considered One West to have breached s. 3.2 and 3.3 of the PMA (the provisions setting out the project manager’s obligations to obtain subdivision and development permits and market the properties). One West denied the alleged breach but advised Greata that it would regard the failure to pay the invoice as repudiation of the PMA.
[13] A notice to arbitrate the resulting disputes with respect to the alleged breach and One West’s project cost claim was issued by Greata on May 14, 2012.
[14] Section 10.5 of the LPA provided that if certain progress (the Phase One benchmark) was not made by February 4, 2008 Concord, at its option, could either terminate the LPA or lend sufficient funds to the partnership to enable it to pay $4,500,000 to Greata and to repay a promissory note issued to Greata for $1,500,000. Concord advanced $6,000,000 to the partnership, however there was a difference of opinion between Greata and Concord with respect to the terms upon which it did so.
[15] The Loan was made pursuant to s. 4.4 of the LPA, which provided:
Concord may make, but is not obliged to make, a loan or loans to the Limited Partnership at the Interest Rate and another terms acceptable to the General Partners, such funds as are necessary to enable the Management Committee to carry out the purposes of the Limited Partnership.
[16] “Interest Rate” is defined in the LPA:
“Interest Rate” means the variable nominal rate of interest per annum being the prime interest rate of Canadian Imperial Bank of Commerce (or its successor) (the “Bank”) for Canadian Dollar commercial loans in Canada as publicly declared by the Bank from time to time as its “Prime Rate”.
[17] Concord demanded repayment of the loan and interest in February 2015. When the Loan was not repaid it issued a notice to arbitrate in March 2015. That arbitration was joined with the arbitration of the project cost claim.
[18] The arbitrator, the Hon. Kenneth Mackenzie, made two awards on June 2, 2017 (BCICAC File Nos. DCA-1394 and DCA-1657).
[19] In the first, he determined One West had not breached the PMA by failing to take appropriate steps to pursue the project. The One West invoice was invalid as there had not been suspension or abandonment of the project when it was issued. The refusal to pay the invoice did not amount to repudiation of the contract. By the time the disputes got to arbitration, however, the parties had agreed the partnership should be dissolved. The arbitrator therefore made a declaration dissolving the partnership. He found One West entitled to claim $6,221,539 in project costs (including a claim of more than $1.1 million in pre-incorporation costs) upon dissolution.
[20] In the second award, he found Concord’s loan to the partnership to be “an Interest of Concord … under s. 10.7(c)(vi) for the purposes of asset proceeds distribution on winding up”.
[21] Section 10 of the LPA provided for the payment of debts and distribution of assets on dissolution of the partnership. Section 10.7 provides, in part:
10.7 Dissolution and Distribution
(c) After the application of section 10.7(a) [which provides for re-transfer to Limited Partners of assets not yet paid for by the Partnership] and/or section 10.7(b) [which provides for the return of a Deposit], … all of the remaining assets of the Limited Partnership shall be liquidated by the Receiver. In liquidating such assets the Receiver shall [sell assets and then distribute the proceeds as follows]:
(iv) firstly, to payment of all debts and liabilities of the Limited Partnership …
(v) secondly, to set up such cash reserves … as the Receiver may deem necessary for any contingent liabilities …
(vi) the balance, if any to the Limited Partners in proportion to their respective Interests.
[22] In effect, the arbitrator determined that the loan was not a demand loan, as alleged by Concord, but created an interest to be accounted for when the assets of the partnership were liquidated, thus placing Concord behind other creditors in priority.
[23] He further held that in the absence of any agreement by the Management Committee to pay interest “no interest is claimable” (award at para. 95).
[24] On July 14, 2017 Greata filed a Petition seeking to set aside the award on the ground the arbitrator exceeded his jurisdiction by allowing a claim arising from dissolution that had not been submitted to arbitration. It argued dissolution of the partnership was never pleaded as a basis for finding that work on the Project was “abandoned or suspended” within the meaning of s. 9.1 of the PMA.
[25] Further, Greata sought leave to appeal on the ground it was an error of law on the part of the arbitrator to make an award to One West for a claim arising upon dissolution that was not a payment “in accordance with and proportionate to the schedule of payments of fees and costs set out in the Budget”. It sought leave to address the following question of law:
Did the arbitrator err in law in making the One West award having regard to section 9.1 of the Project Management Agreement in the absence of an approved Budget as defined by section 7.1 of that agreement?
[26] By Petition filed July 26, 2017 and subsequently amended, Concord, in turn, sought leave to appeal the following questions of law, arising out of the second award:
Whether the Arbitrator … erred in law in finding that, further to the dissolution of the … Limited Partnership … the loan in the amount of $6,000,000 … made by [Concord] to the Partnership is to be included as part of Concord LP’s “Interest” for the purposes of asset proceeds distribution under section 10.7(c)(vi) of the [LPA] … ;
Whether the Arbitrator erred in law in finding that, in the dissolution of the Partnership, the Loan … does not fall within the expression “all debts or liabilities” for the purposes of the distribution of asset proceeds under s.10.7(c)(vi) of the LPA;
Whether the Arbitrator erred in law in finding that the loan was subject to the implied terms as set out in the Award;
Whether the Arbitrator erred in law in failing to find that the Loan was a demand loan and that payment of the Loan was properly demanded by Concord … in February 2015; and/or
Whether the arbitrator erred in law in failing to enforce a term of the Loan, namely, that the loan was made at the “Interest Rate” as defined and mandated in the LPA.
[27] The July 26 Petition set out an argument not made before the arbitrator: that the determination of payment priorities in the award is inconsistent with the provisions of the Partnership Act.
[28] The chambers judge, for reasons indexed as 2018 BCSC 931 (CanLII), dismissed Greata’s petition to set aside the award in favour of One West and dismissed the petition for leave to appeal a question of law arising from the award.
[29] For reasons indexed as 2018 BCSC 932 (CanLII), he granted leave to Concord to appeal one question of law: “did the Arbitrator err by failing to consider relevant provisions of the Partnership Act when determining the distribution priority of the Loan under the LPA?” The balance of the Concord petition was dismissed.
[30] The chambers judge rejected Greata’s application to set aside the One West award pursuant to s. 30 of the Arbitration Act as an award that exceeded the arbitrator’s jurisdiction. He concluded, after reviewing the pleadings:
[61] … It is apparent that One West pleaded both that the PMA was terminated as a result of repudiation or, alternatively, dissolution.
[62] One West argues, and I agree, that termination of the PMA effected by dissolution of the Partnership necessarily results in work on the Project being abandoned or suspended within the meaning of s. 9.1. Section 9.1 of the PMA stipulates that if the Project is abandoned, One West is entitled to compensation for unpaid work.
[31] Turning to the application for leave to appeal, he rejected Greata’s submission that the arbitrator had not directed his mind to the requirement in s. 9.1 of the PMA that the payments were to be made in accordance with and proportionate to the schedule of payments set out in an approved Budget. He held:
[88] The Arbitrator … made a number of findings with respect to the informal budgeting that One West presented to the Partnership including:
(i) that Greata did not object to One West’s informal budgeting practice until disputes arose;
(ii) that One West had followed its established accounting practices in preparing cost estimates and recording expenditures;
(iii) that no loss or damage to the Partnership was caused by the absence of a formal Budget; and
(iv) that Greata accepted many of One West’s costs were reasonable.
…
[90] The structure of the Award, read as a whole, clearly indicates that the Arbitrator considered the question of whether One West was entitled to compensation despite the absence of approved Budgets, and determined that One West was entitled to compensation on the basis of its own accounting.
[91] I am satisfied that the Arbitrator turned his mind to the requirements of s. 9.1 of the PMA and decided that, in the circumstances, the absence of a formal Budget did not preclude the possibility of compensation for One West.
[92] In my view, the question posed by Greata, in essence, challenges the Arbitrator’s contractual interpretation of the PMA, including the application of s. 9.1, and is properly characterized as a question of mixed fact and law.
[93] In any event, even if Greata’s proposed question does raise an issue of law related to the Arbitrator’s justification for the One West Award, I do not find that a determination has the potential to prevent a miscarriage of justice as required by s. 31(2)(a).
…
[99] Further, I note that the position taken by Greata is an attempt to hold One West to the strict budgeting requirements of the PMA after a clear choice not to do so in the course of their contractual dealings. I agree with the following statement from One West’s written argument:
the Arbitrator’s determination on this issue avoided the commercially unreasonable interpretation that Greata could execute the PMA, accept an alternative, informal budgeting process by which One West continued to incur costs in performing services under the PMA, but then unilaterally preclude any payment to One West in respect of these or its pre-LPA services by refusing to agree to a Budget.
[32] The chambers judge granted leave to address the question whether the arbitrator erred in law by interpreting the LPA without reference to the provisions of the Partnership Act, R.S.B.C. 1996, c. 348.
[33] He noted the arbitrator had reviewed ss. 4.4, 10.5, 10.7(c), 1.1 and 3.1 of the LPA in order to properly characterize the Loan. The arbitrator had concluded it was a loan within the terms of s. 4.4 of the LPA for “the purposes of the [Partnership]”. The arbitrator had weighed Greata’s submission and Concord’s response. Greata had submitted that the Loan created an Interest, since s 1.1 of the LPA defines an Interest as “all outstanding loans or capital contributions made by the General Partners or a Limited Partner to the [Partnership]”. Concord had responded that this definition of Interest should not apply to it as a limited partner, based on the language of s. 3.1 of the LPA, which describes Limited Partners’ Interests but does not include loans to the Partnership in that description. The chambers judge held:
[62] It is apparent that the Arbitrator’s determination that the Loan was part of [Concord’s] Interest under the LPA occasioned a detailed examination of the LPA and the circumstances of how and why the Loan was provided. This portion of his analysis was an exercise in contractual interpretation.
[34] He declined to grant leave to appeal in relation to other questions, also considered to be matters of contractual interpretation: whether the arbitrator erred in law by attributing implied terms to the Loan (specifically that repayment was to be governed by the LPA’s dissolution provisions); and whether consistent definition of a partner’s Interest in the LPA required the Loan to be treated as a demand loan.
[35] However, the chambers judge found the question whether the arbitrator erred in law by failing to consider relevant provisions of the Partnership Act to be an extricable question of law relating to a material issue that could affect the result. He considered the question whether a contractual right can be determined without reference to a relevant statute to be one of precedential value.
[36] While noting the provisions of the Partnership Act had not been raised at arbitration and, accordingly, the court’s residual discretion under s. 31(2) was engaged and “generally militates against granting leave” (citing VIH Aviation Group Ltd. v. CHC Helicopter LLC, 2012 BCCA 125 (CanLII) at para. 45), he accepted the submission that the relevant provisions of the Partnership Act had not been raised because it was not anticipated the arbitrator would address post-dissolution asset distribution. He was satisfied the issue was one of pure law that might be resolved with reference to the parties’ pleadings and submissions, and granting leave would not result in prejudice to the responding party (referring to the criteria described in On Call Internet Services Ltd. v. Telus Communications Company, 2013 BCCA 366 (CanLII) at para. 66).
[37] Turning to the question of interest on the loan, he noted the arbitrator had interpreted Section 4.4 of the LPA (which provides: “Concord may make … loans to the [Partnership] at the Interest Rate and on other terms acceptable to the General Partners”) to “require a determination by the management committee about whether or not interest could be claimed in addition to any other applicable terms”.
[38] He rejected Concord’s argument that this interpretation is untenable and that the arbitrator erred in law by failing to take into account and enforce an express provision of the LPA. He held:
[125] The Arbitrator interpreted s. 4.4 of the LPA in a particular way, and a conclusion that the Loan did not attract interest flowed from that interpretation. He quoted s. 4.4 in full at the beginning of his analysis, discussed it, and applied it to the facts before him. I do not agree that he failed to consider or enforce the provision as [Concord] contends.
[39] Greta contends the chambers judge erred in failing to grant leave to address the question whether the arbitrator erred in law in making the One West award, having regard to s. 9.1 of the PMA and the absence of an approved Budget as defined by s. 7.1.
[40] Greta contends the chambers judge erred in allowing Concord to raise a question not raised before the arbitrator. It says there was no evidence before the Court that the effect of the provisions of the Partnership Act was not considered by Concord prior to the arbitration and the chambers judge failed to consider whether the legal issue could reasonably have been determined in Greata’s favour.
[41] Concord contends, by way of cross-appeal, that the Chambers Judge erred in denying it leave to appeal the question whether the arbitrator erred in law in failing to enforce the term of the LPA providing the loan was made at the defined “Interest Rate”.
[42] There is an issue with respect to the standard of review. Greata, citing Richmont Mines Inc. v. Teck Resources Limited, 2018 BCCA 452 (CanLII), says the standard of review on an appeal from a decision to grant or refuse leave under s. 31 of the Arbitration Act is correctness. Concord says the function of this Court on an appeal from a decision to grant or refuse leave under s. 31 is to determine whether the chambers judge erred in law, erred in principle or misapprehended the facts. It says the standard of review should be deferential and this Court should not substitute its own judgment for that of the chambers judge.
[43] In Richmont, Smith J.A. said:
[60] A judge’s decision on a leave application is a question of law alone that attracts the correctness standard of review: Housen v. Nikolaisen, 2002 SCC 33 (CanLII) at para. 8.
[44] In my view, that passage must be read together with the following description of the error at issue in the case:
[61] In my view, the judge erred in his approach to s. 31 of the Act. The issue for the application judge was whether Richmont had demonstrated an extricable question of law in the arbitrator’s analysis, as described in Teal Cedar at paras. 59–60. However, the judge did not address that issue but instead determined the substantive issue of the correctness of the arbitrator’s decision by agreeing with Richmont’s interpretation of Recital “B”. This, in turn, led the judge to conclude that Richmont had identified an extricable question of law to appeal.
[62] The approach taken by the judge to s. 31 of the Act was not consistent with the analytical framework articulated in Sattva and Teal Cedar.
[45] There is no doubt the characterization of the issue to be addressed on a s. 31 application is a question of law and the adoption and use of the wrong test in addressing that question is an error of law, reviewable on a standard of correctness. In my view Richmont is authority for the proposition that a judge’s decision on whether a question of law has been identified on a leave application is a question of law alone that attracts the correctness standard of review.
[46] It is important to bear in mind that s. 31 of the Arbitration Act requires a chambers judge to address a number of questions. First the judge must determine whether or not the applicant has identified a pure legal question. Appellate courts can and should pass judgment upon the question whether a chambers judge has correctly characterized the question posed by the appellant as an extricable question of law. That is the process this Court and the Supreme Court of Canada have engaged in on numerous occasions on appeals from applications for leave to appeal from arbitral decisions.
[47] If an extricable question of law is identified, the judge must go on to consider the criteria expressly identified in ss. (a) to (c) (cited above at para. 1). As the Teal Cedar majority noted:
[39] … [Once] the statutory preconditions are met, granting leave to appeal an award under the Arbitration Act is a matter of judicial discretion: “… the court may grant leave …” (Arbitration Act, s. 31(2)).
[48] Because the consideration of the criteria enumerated in ss. 31(a) to (c) requires a chambers judge to exercise judicial discretion, deference should be afforded to the judge’s assessment of the importance of the result of the arbitration to the parties; the risk of a miscarriage of justice; and the importance of the point of law to the class of persons of which the applicant is a member and to the public. An appeal is not intended to substitute the opinion of a division of this Court for that of the chambers judge in relation to these issues.
[49] The decision to permit a party to seek leave in relation to an issue not raised before the arbitrator is also discretionary: Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61 (CanLII), [2011] 3 S.C.R. 654 at paras. 22–29. In R. v. Vidulich, 1989 CanLII 231, Lambert J.A. wrote at p. 11 of an application for leave to argue a new issue on appeal:
The decision whether to grant leave is a matter for the discretion of the court. The exercise of the discretion will be guided by balancing the interests of justice as they affect all the parties. The rule is no different in criminal cases than it is in civil cases, though the balancing of the interests of justice may have a different emphasis.
[50] Accordingly, in my view, the standard of review in relation to the issue of whether the parties have identified extricable questions of law is correctness. However, we should defer to the trial judge’s assessment of the importance of the result to the parties and the public, the risk of a miscarriage of justice and whether Concord should be able to raise a legal question on appeal that was not argued before the arbitrator.
[51] Insofar as the identification of an extricable question of law is concerned, we must closely scrutinize the argument, as Gascon J. cautioned in Teal:
[44] [W]hile the application of a legal test to a set of facts is a mixed question, if, in the course of that application, the underlying legal test may have been altered, then a legal question arises. For example, if a party alleges that a judge (or arbitrator) while applying a legal test failed to consider a required element of that test, that party alleges that the judge (or arbitrator), in effect, deleted that element from the test and thus altered the legal test. As the Court explained in Southam, at para. 39:
. . . if a decision-maker says that the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considers only A, B, and C, then the outcome is as if he or she had applied a law that required consideration of only A, B, and C. If the correct test requires him or her to consider D as well, then the decision-maker has in effect applied the wrong law, and so has made an error of law.
Such an allegation ultimately challenges whether the judge (or arbitrator) relied on the correct legal test, thus raising a question of law (Sattva, at para. 53; Housen, at paras. 31 and 34-35). Accordingly, such a legal question, if alleged in the context of a dispute under the Arbitration Act, and assuming the other jurisdictional requirements of that Act are met, is open to appellate review. These “extricable questions of law” are better understood as a covert form of legal question — where a judge’s (or arbitrator’s) legal test is implicit to their application of the test rather than explicit in their description of the test — than as a fourth and distinct category of questions.
[45] Courts should, however, exercise caution in identifying extricable questions of law because mixed questions, by definition, involve aspects of law. The motivations for counsel to strategically frame a mixed question as a legal question — for example, to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments — are transparent (Sattva, at para. 54; Southam, at para. 36). A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings. Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law; Sattva, at para. 53), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question).
[52] Greta submits the chambers judge erred in his assessment of whether the question it posed was a question of law and whether the proposed appeal had arguable merit.
[53] Greata submits the arbitrator failed to construe the contract as a whole because he ignored the requirement that payments on suspension or abandonment of the project be “in accordance with and proportionate to the schedule of payments of fees and costs set out in the Budget”. The project cost claim, it argues, is addressed in only the last sentence of para. 75 of the award: the simple conclusion that “One West is entitled to claim for costs incurred on the termination of the PMA concurrently with the dissolution of the Partnership.”
[54] Greata suggests the arbitrator made two errors of law: failing to give words in the contract any meaning (citing Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293 (CanLII)) and interpreting the contract by reading one part of a clause in isolation (citing 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802 (CanLII)). As I have noted, such arguments must be weighed carefully so as to identify the strategic framing of mixed questions as legal questions.
[55] Greata contends the arbitrator did not adopt either of the interpretations of s. 9.1 upon which an award might have been founded. He did not expressly hold that liability arises when the work is abandoned or suspended, irrespective of whether there is an approved “Budget” in place. Nor did he expressly hold that recovery under s. 9.1 is not conditional upon adoption of a “Budget”. Either of those conclusions, Greata submits, if made, would have, in any event, amounted to an extricable error of law.
[56] Greata acknowledges the arbitrator was aware of the submission that a Budget had not been approved, as contemplated. He addressed that fact at para. 82 of the award:
I am satisfied that no loss or damage to the Partnership was caused by the absence of a formal Budget or any deficiencies in One West’s less formal budgeting and costs control procedures.
[57] However, Greata says it was not open to the arbitrator to conclude that because the parties had not adopted a Budget and because that choice had caused no loss, there was no need to consider whether s. 9.1 precluded payment. It says there was no plea by One West or Concord that Greata had waived the budget requirement and “to the extent that the award can be read as accepting that payments under s. 9.1 could be made in accordance with the ‘informal’ budgeting process which was used, there is nothing in the award that demonstrates that the arbitrator turned his mind to the effect of the requirement that One West’s recovery be proportionate to the line items of cost required by the Budget”.
[58] I would not accede to that argument. It amounts to saying: “while the arbitrator may have concluded that payments under s. 9.1 could be made in accordance with the ‘informal’ budgeting process, he did not turn his mind to the requirement that One West’s recovery be proportionate to the line items of cost required by the Budget”. That argument suggests the arbitrator ought to have read into the contract an absurd term: that where costs and fees are recoverable as a result of the implicit agreement to proceed without a budget, the claim must be proportionate to a schedule of payments of fees and costs set out in the non-existent Budget.
[59] Concord says the arbitrator was faced with the question whether One West could claim the significant costs it incurred in the period during which the parties sought to advance the development or whether it was precluded from doing so because they had not agreed upon a Budget within the first 15 days. Concord says this question was clearly one of mixed fact and law: what did the parties intend by the language of the agreement, viewed objectively, in the circumstances in which it was made: Hayes Forest Services Limited v. Weyerhaeuser Company Limited, 2008 BCCA 31 (CanLII); Petty v. Telus Corp., 2002 BCCA 135 (CanLII).
[60] The position taken by Greta, that One West can only claim to be entitled to payment “in accordance with and proportionate to the schedule of payments and fees and costs set out in the budget”, was clearly enunciated in Greata’s pleadings. Concord submits the arbitrator cannot be taken to have ignored the pleadings and must be taken to have rejected Greata’s position. Further, however, Concord says the arbitrator expressly referred to the argument. He noted that Greata disputed the material invoice, in part, because the two-line statement it contained did not comply with a budget schedule and no “Budget”, as defined by the PMA was ever adopted (a phrase emphasized by the arbitrator).
[61] He expressly addressed Greata’s conduct, observing that its position in relation to pre-contract legal costs and expenditures (that they were not recoverable) was “otherwise inconsistent with the conduct of the parties and the overall Partnership relationship”.
[62] As the chambers judge noted, the arbitrator considered the fact One West had produced cost projections for the project as a whole. He found that compliance with the requirement that a Budget be adopted was precluded, in part, by difficulty in estimating the cost of not yet designed portions of the project. He noted Greata’s position was that more, rather than less, should be spent on development and considered the fact non-compliance was not prejudicial to Greata.
[63] Here, as in Richmont, the arbitrator described the issue, addressed it and expressly rejected the position being taken by the appellant. He did not ignore ss. 7.1 and 9.1 but expressly referred to them. He had regard to the factual matrix and was alive to the issue of whether his interpretation of the agreement would accord with good business sense.
[64] Even assuming Greata has correctly identified an error in the arbitrator’s award in the manner in which s. 9.1 was construed, that error “could not … be extricated from the factual matrix” of the case.
[65] Greata is correct to say the arbitrator did not expressly construe the meaning of s. 9.1 of the PMA. He did not clearly rely upon waiver or upon quantum meruit in support of the award (as those doctrines are only described by the arbitrator as alternate means of arriving at the same result). However, in the circumstances, because the contract might have been read as Concord suggests, in a manner consistent with the result, the failure to expressly adopt the waiver or quantum meruit arguments is not evidence of a failure to give weight to ss. 7.1 and 9.1.
[66] Concord points out that payment upon suspension or abandonment of the project expressly depends upon one condition: that the work is not defective. There is no other clear condition. The applicable clause reads as follows:
9.1 If any work undertaken by [One West] is abandoned or suspended by the Partnership in whole or in part, [One West] will, provided that such work or services is not defective, be paid on abandonment or suspension for the services rendered on account of such work, in accordance with and proportionate to the schedule of payments of fees and costs set out in the Budget.
[Emphasis added.]
[67] Concord argues this provision may be read in such a manner as to require a determination that the work or services are not defective but does not establish any other precondition to payment. The phrase “in accordance with” describes a standard against which the cost of the work is to be assessed but is not mandatory. This interpretation leaves it open to the arbitrator to make an award for payment of work or services that are not defective so long as the fees and costs are reasonable.
[68] I cannot say the arbitrator ignored s. 9.1 of the PMA. I therefore cannot say the chambers judge erred in concluding that Greta had not identified an extricable question of law as a basis upon which to challenge the arbitrator’s decision.
[69] I would dismiss the appeal from the refusal to grant leave to appeal the One West award.
[70] When considering whether a new argument, founded upon the provisions of the Partnership Act could be advanced on appeal, the chambers judge referred to two of the leading authorities: On Call Internet Services and Laursen v. Director of Crime Victim Assistance, 2017 BCCA 8 (CanLII). He correctly identified the criteria set out in Laursen, namely: whether the issue is a question of pure law, capable of resolution on appeal; and whether any prejudice would be occasioned by hearing the new argument. In my view there was no error in describing or applying the appropriate test in relation to the decision to grant leave to advance a new argument.
[71] Greata says Concord failed to adduce evidence about why the Partnership Act issue was not raised for determination by the arbitrator. It argues the chambers judge erred in accepting, at face value, counsel’s assertion that it had not been anticipated that the arbitrator would address post-dissolution asset distribution. In the result, it says, the chambers judge erred in failing to exercise the residual discretion to deny leave in circumstances where a new argument is advanced on appeal.
[72] Referring to paras. 94 and 95 of the award, Greata says it was no surprise that the priority of the Loan would be an issue on dissolution of the partnership. It says “the analysis of s. 10.7(c)(iv) of the LPA, and the priority it gives to ‘debts and liabilities’ over the Interests of the partners was at the core of the Arbitrator’s analysis”.
[73] It is correct to say that on an application to address an issue not previously raised, the application judge may require evidence in support of the submission that the party seeking to raise the issue was taken by surprise and did not make an informed decision not to raise it earlier. For example, in On Call Internet Services Ltd. v. Telus Communications Company, 2013 BCCA 366 (CanLII), Kirkpatrick J.A. discussed the importance of the evidentiary record on an application to advance a new argument on an appeal from arbitration. Similarly, in Price v. Robson, 2017 BCCA 419 (CanLII) (Chambers), Fitch J.A. refused to grant leave for a new issue to be raised for the first time on appeal when the applicant had not provided an adequate explanation for why the issue was not raised in the Court below.
[74] However, that is not an inflexible rule. Indeed, in this case it is clear from the circumstances that neither party recognized the issue in time to address it at arbitration. As Concord points out, while dissolution of the Partnership was at issue in the arbitration proceeding, Greata’s position until argument was that the Partnership was not dissolved and, while Concord sought declarations in support of dissolution, it did not expressly seek a declaration with respect to priorities of claims on dissolution. Indeed, before the chambers judge, Greata submitted that the arbitrator had exceeded his jurisdiction by allowing a claim arising from dissolution that had not been submitted to arbitration. It argued dissolution of the partnership had not been pleaded as a basis for finding that work on the Project was “abandoned or suspended”. I can see no basis for setting aside the chambers judge’s assessment of the case for granting leave to address a new issue when both parties before him, albeit for different reasons, argued that the effects of dissolution had not been front and centre when the parties went to arbitration.
[75] In my view the chambers judge did not err in concluding the arbitration took an unexpected turn and the provisions of the Partnership Act were not raised because Concord did not anticipate the arbitrator would address post-dissolution asset distribution.
[76] Greata says the issue of the effect of the Partnership Act provisions on the terms of the Loan is not a purely legal question. Greata says a more extensive evidentiary record could have shed “further light” on the interaction of the Partnership Act with the terms of the loan if Concord had raised this issue at the arbitration. Specifically, Greata submits a certificate required by the Partnership Act that was not in evidence could have been relevant.
[77] Such a certificate is indeed provided for in the Partnership Act. Section 27 of the Partnership Act provides that advances or payments made by partners fall to be categorized either as an “amount of capital” which the partner agreed to subscribe, or as a further amount, on which the partner would be entitled to interest. In respect of limited partnerships, s. 51 of the Act requires a certificate to be filed that sets out the “aggregate amount of cash and the nature and fair value of any other property to be contributed by all of the limited partners” and the “aggregate amount of any additional contributions agreed to be made by limited partners and the times at which or events on the happening of which the additional contributions are to be made”.
[78] In response, Concord says its argument based upon the Partnership Act depends upon the characterization of the advance to the partnership as a loan, rather than a contribution to the partnership’s capital. Concord says it might have adduced the certificate in evidence had Greata sought to establish at arbitration that the $6,000,000 advance was an “amount of capital” that a partner agreed to contribute. However, Greata did not take that position at arbitration. In my opinion the chambers judge did not err in concluding that Greata was not prejudiced by the inability to lead evidence with respect to the certificate on appeal.
[79] Insofar as the merits of the proposed appeal are concerned, Greata submits the chambers judge should have found that consideration of the Partnership Act is unlikely to have affected the result. Greata notes the chambers judge considered its position to be a “robust” (and therefore, it says, a strong, arguable) interpretation of the Partnership Act as it relates to contractual rights. That being the case, Greata says he ought to have dismissed Concord’s Petition.
[80] Concord says Greata mischaracterizes the role of the chambers judge. It says he was called upon to determine whether the question of law in issue pertained to a material issue which, if decided differently would affect the result. That required the chambers judge to determine whether the legal point has “arguable merit”. Concord says an appeal has arguable merit if “the issue raised by the applicant cannot be dismissed through a preliminary examination of the question of law”. In support of that proposition Concord cites the following passage from Sattva which, in my view, is decisive of the issue:
[74] [The] appropriate threshold for assessing the legal question at issue under s. 31(2) is whether it has arguable merit. The arguable merit standard is often used to assess, on a preliminary basis, the merits of an appeal at the leave stage … “Arguable merit” is a well-known phrase whose meaning has been expressed in a variety of ways: “a reasonable prospect of success” … “some hope of success” and “sufficient merit” …; and “credible argument” … In my view, the common thread among the various expressions used to describe arguable merit is that the issue raised by the applicant cannot be dismissed through a preliminary examination of the question of law. In order to decide whether the award should be set aside, a more thorough examination is necessary and that examination is appropriately conducted by the court hearing the appeal once leave is granted.
[75] Assessing whether the issue raised by an application for leave to appeal has arguable merit must be done in light of the standard of review on which the merits of the appeal will be judged. This requires a preliminary assessment of the applicable standard of review. As I will later explain, reasonableness will almost always apply to commercial arbitrations conducted pursuant to the AA, except in the rare circumstances where the question is one that would attract a correctness standard, such as a constitutional question or a question of law of central importance to the legal system as a whole and outside the adjudicator’s expertise. Therefore, the leave inquiry will ordinarily ask whether there is any arguable merit to the position that the arbitrator’s decision on the question at issue is unreasonable, keeping in mind that the decision-maker is not required to refer to all the arguments, provisions or jurisprudence or to make specific findings on each constituent element, for the decision to be reasonable… Of course, the leave court’s assessment of the standard of review is only preliminary and does not bind the court which considers the merits of the appeal. As such, this should not be taken as an invitation to engage in extensive arguments or analysis about the standard of review at the leave stage.
[Citations omitted.]
[81] I agree with Concord’s submission that Greata’s first position, that leave should not have been granted unless a convincing case could be made out, invites us to go well beyond a preliminary examination of the question of law.
[82] Greata further contends, however, that Concord’s proposed appeal lacks arguable merit. Concord seeks to rely on what it says are “mandatory provisions” of ss. 42(1), 60 and 73 of the Partnership Act, which it says govern the operation of the LPA. Greata argues that s. 42 gives partners the right to have the property of the partnership applied in payment of the debts and liabilities of the firm but it does not address the distribution priority. It says that s. 60 is not mandatory but simply permits limited partners to receive a proportionate share of the assets, along with other creditors, in payment of their claims to be repaid money lent to the partnership (other than capital contributions). It says s. 73 provides a mandatory scheme for distribution on dissolution of a limited partnership, which prioritizes the payment of “liabilities of the partnership to creditors” over payments to “limited partners on account of their contributions”. But nowhere in the Act is a “contribution” defined. It says the characterization of a payment of funds as either a liability or a contribution is a question of fact, analogous to the characterization of shareholder loans versus capital contributions, and argues the arbitrator concluded that as between them, the partners agreed the Loan would be treated as equivalent to a capital contribution. It relies on the statement of Newbury J.A. in Ghassemvand v. Premium Weatherstripping Inc., 2017 BCCA 309 (CanLII) (at para. 35) that “the law seems to be clear that this ‘characterization’ is primarily a question of fact, or perhaps mixed fact and law (insofar as Sattva applies), to be determined by reference to all the circumstances at the time of the advance”.
[83] Concord disputes this interpretation of the award. It says it is an error to say the arbitrator concluded that the $6 million loan was a capital contribution rather than a debt of the Partnership. It says the arbitrator used no such language, and argues that it was “not open” to the arbitrator to conclude the advance was a capital contribution for two reasons. First, because such a finding would have been inconsistent with Greata’s express refusal to treat the advance as capital because doing so would equalize the partners’ capital accounts. Second, because capital contributions cannot be withdrawn whereas Greata admitted that the $6,000,000 advance was repayable upon a benchmark being met.
[84] Concord also says Greata misstates its argument with respect to the effect of the Partnership Act. It intends to argue that the Act was intended to displace the common law rule that the transfer of money by a partner to a partnership will not create a debtor/creditor relationship between the partner and the firm but is considered an “advance”, which is dealt with only on a taking of accounts following a dissolution of the firm.
[85] Concord explains its position on the impact of the Partnership Act as follows. Pursuant to subsection 60(2) of the Partnership Act, the $6 million “loan” has the same legal status as loans from third parties. Pursuant to ss. 42(1) and 73 of the Partnership Act, an agreement, such as the arbitrator found existed, to subordinate the $6 million loan such that it is not rateable with other debts owed to third parties would be legally ineffective. Pursuant to s. 73, the partners’ agreement can vary the order of distribution under sub-sections (c) through (f); however, their agreement cannot alter the requirement that a limited partnership pay its liabilities to creditors first, before subsequent distributions are made from the remaining assets. In support of this argument Concord relies upon the description of similar (and dissimilar) legislation and the common law rule in Byers v. CanEnerco Ltd., 2001 CanLII 28275 (ON SC), 30 C.B.R. (4th) 195; 2001 CanLII 28275 (ON SC).
[86] These competing arguments clearly require consideration. I would not accede to the argument that the chambers judge ought to have dismissed the petition because the extricable question of law could not arguably have affected the result. In the words used, at para. 74 of Sattva, “a more thorough examination is necessary and that examination is appropriately conducted by the court hearing the appeal once leave is granted”.
[87] There remains for consideration only the question of whether the chambers judge erred in concluding that an extricable question of law was not raised in relation to the arbitrator’s refusal to allow a claim for interest on the Concord loan.
[88] In relation to that issue, the parties’ roles are reversed. Concord relies upon the proposition that it is an extricable error of law on the part of an arbitrator to fail to apply a specific and relevant portion of a contract (citing Greata’s factum and para. 64 of Sattva); whereas Greata says Concord’s appeal rests on a faulty premise: that s. 4.4 of the LPA requires the payment of interest at the Interest Rate for all loans made by Concord. It describes that as a question of contractual interpretation and a question of mixed fact and law that is not open to review.
[89] For ease of reference, I reproduce the material clause:
4.4 Concord may make, but is not obliged to make, a loan or loans to the Limited Partnership at the Interest Rate and on other terms acceptable to the General Partners, such funds as are necessary to enable the Management Committee to carry out the purposes of the Limited Partnership.
[90] Concord says s. 4.4 of the LPA requires the General Partners to agree upon the terms of a loan other than the Interest Rate. The applicable interest rate is pre-determined. It argues the definition of “Interest Rate” in the LPA and the reference to the defined term in clause 4.4 are unnecessary if partners have to agree on the rate of interest on loans made pursuant to the section. The contract should not be read in such a manner as to make its provisions superfluous or unnecessary.
[91] Concord says the evidence at arbitration was that the only term of the loan ever discussed between the partners was whether or not it would be payable on demand.
[92] The arbitrator reproduced s. 4.4 at para. 90 of the award and noted that the parties agreed the loan was made pursuant to s. 4.4. He noted, in the same paragraph, that the parties had been unsuccessful at negotiating the terms of the loan. He then turned (at paras. 91–92) to the question of whether the loan was a demand loan, as Concord argued, or an “interest” of Concord payable pursuant to s. 10(7)(c)(vi) of the LPA, as Greata argued. He discussed (at paras. 93–95) the definition of a partner’s “Interest” in the partnership before concluding: “[i]t follows that in the absence of any agreement by the MC to pay interest on the loan, no interest is claimable”.
[93] The arbitrator’s analysis does not refer to the phrase in s. 4.4 that loans made pursuant to that section are made “at the Interest Rate”, nor to the definition of “Interest Rate” in s. 1.1 of the LPA.
[94] Concord contends there is no explanation in the award justifying the failure to apply the plain language of s 4.4 of the LPA and the definition of “Interest Rate” in s.1.1. It argues, further, that it was inconsistent for the arbitrator to default to the terms of the LPA to resolve uncertainty with respect to the repayment term but not to default to the defined Interest Rate to resolve uncertainty with respect to interest.
[95] Greata says the arbitrator concluded that the loan was a loan made under s. 10.5 of the LPA. It submits s. 10.5 provided for a mandatory loan from Concord LP, under certain conditions but did not provide any specific terms for the Loan regarding either the term of the loan or the interest rate.
[96] Although Greata’s submissions here are correct, they are beside the point. The question is not whether s. 10.5 provided for specific terms, but whether s. 4.4 provided for such terms. As acknowledged by the arbitrator, the parties agreed the loan was made pursuant to s. 4.4. That provision of the LPA referred to a defined Interest Rate.
[97] In my view, the chambers judge erred by not granting Concord leave to appeal on this question. The question whether the arbitrator erred by failing to assign meaning to all the contested terms of a contract and by adopting a construction of a contract inconsistent with the governing principles of contractual interpretation is an extricable question of law: Richmont. There is arguable merit in Concord’s position.
[98] I would allow the appeal only insofar as I would grant leave to Concord to raise on appeal the question whether the arbitrator erred in law by failing to consider the effect of the definition of the term “Interest Rate” in the LPA and to give effect to the defined term.
“The Honourable Mr. Justice Willcock”
I agree:
“The Honourable Mr. Justice Fitch”
I agree:
“The Honourable Mr. Justice Abrioux”
