“The courts of this country should not be the places where resolution of disputes begins. They should be the places where the disputes end after alternative methods of resolving disputes have been considered and tried.”
– Sandra Day O’Connor
The litigation process has, particularly in recent years, come under scrutiny in terms of its effectiveness and efficiency in resolving disputes. Increasing costs, lengthy delays and a shortage of judges are some of more prevalent concerns voiced by the public – concerns that are often echoed by those in the legal profession. As a result, commercial arbitration has gained significant traction as a viable and sometimes preferred dispute-resolution mechanism.
Arbitration has many advantages when compared with proceeding down the traditional path of a trial in a court of law. Historically, arbitration has been considered to be a cheaper and more expeditious method for resolving disputes. Litigation can involve significant time-consuming procedures such as substantial document production obligations, lengthy examinations for discovery and pre-trial court appearances. Arbitration, on the other hand, generally utilizes simplified procedures that may streamline the resolution process.
One of the more significant advantages in proceeding with arbitration is the control that parties exert over the entire process. Arbitrators are often selected by agreement of the parties. Unlike the courtroom where judges are assigned to a particular case, the parties may select an arbitrator with considerable experience in the subject matter of a dispute.
Also, parties can, by agreement, exercise control over the pre-hearing process. This enables parties to elect for less stringent discovery obligations with specific and defined timelines for completing them. Furthermore, arbitration provides a medium whereby disputes may be resolved in a confidential manner, which for many businesses can be important where serious allegations are made against them or where sensitive information is at issue.
The purpose of this paper is to examine the framework under which arbitration operates in British Columbia pursuant to the Arbitration Act1(formerly the Commercial Arbitration Act and referred to herein as the “Act”) and to discuss recent jurisprudence expounding upon the governing principles.
What is Arbitration?
Arbitration is simply a forum where parties may have their dispute resolved by the decision of a third party outside of the confines of the courtroom. As with mediation, arbitration is a well-recognized dispute resolution mechanism that both the legislature and the courts seek to uphold. In VIH Aviation Group Ltd. v. CHC Helicopter LLC2, the British Columbia Court of Appeal held:
…Where parties have deliberately preferred arbitration as the method for resolving disputes, it is expected that they will fully argue their cases in that forum.3
Arbitration can be viewed as a hybrid of mediation and trial in that it draws some features from both those forums. Like mediation, arbitration is a voluntary process requiring the parties’ consent and agreement to participate in the hearing. Additionally, in both mediation and arbitration, the parties may exercise significant control over the procedures employed including the selection of a mediator or arbitrator, as the case may be.
The key difference between mediation and arbitration is that a mediator is not provided with any decision-making authority. His role is merely to facilitate a settlement. In arbitration, the parties are expected to present their evidence and legal arguments to the arbitrator for a ruling. In this respect, arbitration mirrors trial as arbitrators are expected to make both factual and legal findings that bind the parties. The power of the arbitrator includes the authority to make an award in favour of one party.
Perhaps one of the most attractive features of arbitration to many parties, particularly large corporations, is the confidentiality that attaches to arbitration proceedings. The openness and accessibility of the courtroom is an essential feature of the court system and the administration of justice. The court record (e.g. pleadings, affidavits, transcripts, orders, etc.) is generally made available to the public, who are also entitled to attend court hearings. While transparency in the courtroom promotes public confidence in the judicial system, it can also create some anxiety amongst parties who do not want their dispute to be open to the public. Arbitration is, therefore, appealing as an alternative because the hearings and the record are not made available to the public.
Arbitration in British Columbia
The Act is the governing statute concerning arbitration in British Columbia. It applies where there is a written or verbal agreement by the parties to refer a dispute to arbitration or where a statute refers to arbitration. This includes not only contracts containing arbitration provisions, but also situations where parties voluntarily agree to submit to arbitration even when not legally bound by contract.
Although arbitration usually arises from an agreement between the parties, it may also be enabled or required by statute. Some examples include:
- Strata Property Act4
- Forest Act5
- Labour Relations Code6
- Family Law Act7
The British Columbia International Commercial Arbitration Centre (“BCICAC”)
The BCICAC is a non-profit organization operating under the Society Act for the purposes of providing “effective alternative dispute resolution services to the commercial and international community” by making available various avenues to resolve disputes outside of the court system. Established by the Government of British Columbia, the BCICAC finds its roots in the provincial government’s acceptance of the arbitration model proposed by the United Nations Commission on International Trade Law and provides its services in accordance with two guiding principles:
- minimal judicial intervention; and
- a significant degree of autonomy for parties engaged in arbitration.
For domestic commercial arbitration, the BCICAC publishes rules of procedure (the “Rules”)8 that parties are expected to follow when utilizing its arbitration services. In the absence of a specific agreement concerning rules of procedure, the Act expressly adopts and incorporates the Rules. Section 22(1) of the Act states:
Unless the parties to an arbitration otherwise agree, the rules of the British Columbia International Commercial Arbitration Centre for the conduct of domestic commercial arbitrations apply to that arbitration.9
As explained above, parties to arbitration have significant control over the procedural rules employed during arbitration and the ability for parties to opt out of the Rules upholds this right. While the Rules provide a general framework for procedures, parties should consider whether they are suited to the specific matters in dispute. For example, in a technical dispute where considerable expert evidence is expected, the parties may wish to expand the discovery process and the procedures for use of expert reports. Under the Rules, parties are expected to deliver expert reports 14 days before the hearing, which is substantially different from the 84 days under the Supreme Court Civil Rules.
In addition, the Rules stipulate processes that may not be well suited for a particular dispute. For instance, Rule 26(5)(a) & (c) specifies that, subject to direction of the arbitrator, evidence from witnesses is to be presented in written form exchanged 5 days prior to the hearing. While this can streamline the process, it may not serve the parties’ interest where there is a significant factual dispute. Also, the Rules do not expressly incorporate a procedure for examinations for discovery. This is left to the parties and/or the arbitrator to agree upon. It is, therefore, not uncommon for parties to opt out of some of the Rules, but to incorporate others. Experienced counsel with an understanding of the process and the particulars of the claim may tailor the rules of procedure for the most speedy and expeditious adjudication of the claim.
Appointment of an Arbitrator
One of the significant advantages to arbitration is the parties’ ability to select the arbitrator(s). Although the Courts may appoint judges with particular experience or background to preside over certain matters, it is not uncommon for judges to have no experience in the subject matter of the dispute. By being afforded the opportunity to select an arbitrator, parties are able to scrutinize proposed arbitrators and ensure he or she is not only versed in the subject matter, but also the applicable laws.
Both the Rules and the Act provide that unless the parties otherwise agree, an arbitration shall be before a single arbitrator. If the parties cannot agree upon the selection of an arbitrator, then pursuant to the section 17 of the Act, the Court, on application, may appoint the arbitrator. Alternatively, Rule 12(1) provides that the BCICAC may appoint an arbitrator who is “wholly independent and impartial” (Rule 13(1)). Where multiple arbitrators are contemplated by the agreement, Rules 12(2) states that each party may select one arbitrator each and that the two arbitrators shall appoint the third.
Jurisdiction of the Arbitrator
The jurisdiction of an arbitrator to decide a matter is founded in the arbitration agreement. The arbitrator is required to rule upon the issue(s) in dispute between the parties, which, pursuant to Rule 20(1), includes a determination of his or her jurisdiction and the validity of the arbitration agreement. The arbitrator’s ability to determine his or her own jurisdiction is known as the “competence-competence” principle. Justice Griffin elucidated upon this principle in Robinson v. National Money Mart Company10 explaining:
[Any] challenge to an arbitrator’s jurisdiction over a dispute should first be determined by the arbitrator, unless the challenge involves a pure question of law, or one of mixed fact and law that requires for its disposition “only superficial consideration of documentary evidence in the record, and is not merely a delaying tactic”.11
In addition to general jurisdiction and authority, Rule 19(1) provides the arbitrator with authority to “conduct the arbitration in the manner it considers appropriate but each party shall be treated fairly and shall be given full opportunity to present its case”. Thus, the arbitrator may exercise his or her authority on procedural matters to ensure “a just, speedy and economical determination of the proceeding on its merits” (Rule 19(2)).
Although an arbitrator may conduct the proceedings in a manner that he or she considers appropriate, it must be still be in accordance with the principles of natural justice. In Arbutus Software Inc. v. ACL Services Ltd.12, the Court explained:
Natural justice requires an arbitrator to act with procedural fairness. The concept of natural justice can mean different things in different cases, however, and the standard will vary to suit the circumstances. For example, natural justice may be denied where the arbitrator fails to give a party the opportunity to present its case, refuses to admit relevant evidence, or fails to deal with all issues for determination. In addition, depending upon the circumstances, a failure to order production of necessary documents may amount to a breach of the rules of natural justice.13
Supplementing the authority and jurisdiction conferred upon an arbitrator under Rules 19 and 20, Rule 29(1) itemizes other general powers. Under that Rule, an arbitrator may:
- order for an adjournment of the proceedings from time to time;
- make a partial award;
- make an interim award, including an order for costs or an order for the protection or preservation of property;
- order inspection of documents or other property;
- order the recording of any oral hearing;
- extend or abridge a period of time required by the Rules;
- make interim or other orders that do not deal with the issues in dispute;
- (h) order any party to provide security for costs;
- order any party to provide security for the amount in dispute;
- order that any party or witness shall be examined on oath or affirmation;
- make an award ordering specific performance, rectification, injunctions or other equitable remedies.
Notwithstanding the particulars of an arbitration agreement and the Rules, section 23(1) of the Act requires an arbitrator to decide a matter by reference to law. That section reads:
An arbitrator must adjudicate the matter before the arbitrator by reference to law unless the parties, as a term of an agreement referred to in section 35, agree that the matter in dispute may be decided on equitable grounds, grounds of conscience or some other basis14.
At first blush, it appears that an arbitrator has authority to make equitable orders pursuant to Rule 29(1)(k); however, the jurisprudence is inconsistent on this point.
Justice Greyell in Mercer Gold Corporation (Nevada) v. Mercer Gold Corp. (B.C.)15, ruled that arbitrators have jurisdiction to award equitable remedies. At paragraph 71, his Lordship explained:
In Seidel v. TELUS Communication Inc., 2011 SCC 15, the Supreme Court of Canada discussed the types of remedies that arbitrators appointed under the BCICAC Rules may grant. In holding that arbitrators appointed under the Commercial Arbitration Act cannot make orders that bind third parties, the majority, at para. 39, pointed to Rule 29(1)(k) of the BCICAC Rules, which “provides that an arbitrator may order ‘injunctions and other equitable remedies'”. In their dissenting opinion, Deschamps and LeBel, JJ. said, at para. 152: “Second, we reiterate that arbitrators who derive their authority from the CAA have broad remedial powers at their disposal, including the authority to grant “injunctions and other equitable remedies” (R. 29(1)(k), BCICAC Rules). They also must apply the law (s. 23, CAA; R. 33, BCICAC Rules).” Although the majority and dissent disagreed on whether the remedial powers extended to orders that affect third parties, the law is clear that arbitrators appointed pursuant to the Commercial Arbitration Act have the jurisdiction to grant injunctions and other equitable remedies. This no doubt includes relief from forfeiture.16
Similarly, in Hayes Forest Services Limited v. Teal Cedar Products Ltd.17, despite the absence of an agreement contemplated pursuant to section 23 of the Act, a unanimous Court of Appeal concluded:
I do not accept Hayes’ argument that an arbitrator appointed under the Regulation or the contract has no power to grant the declaratory or injunctive relief sought by Hayes.
An arbitrator has the power to award equitable remedies pursuant to s. 22(1) of the [Act] and Rule 29(1)(k) of the [Rules].
To hold that section 23 of the [Act] excludes equitable remedies would render Rule 29(1)(k) of the [Rules] meaningless.
The purpose of section 23 of the [Act] is not to exclude equitable remedies. Rather, it was included in the legislation to address the substantive rules that an arbitrator may apply to a dispute.18
The Court of Appeal in Hayes determined that its previous decision in Randhawa v. The Pepsi Bottling Group (Canada) Co.19 was decided per incuriam for failing to reference the Report on Arbitration of the Law Reform Commission of British Columbia (May 1982) and for failing to reference section 22 of the Act and section 29 of the Rules.
Randhawa involved a labour dispute where the grieved employee sought the equitable remedy of reinstatement in the absence of an express provision in the contract of employment between the parties. The arbitrator ruled that he did not have jurisdiction grant this remedy. On appeal, the Court of Appeal upheld the lower decision of Mr. Justice Williams finding that the parties did not contracted out of section 23 of the Act and, as a result, precluded the arbitrator from granting an equitable remedy.20
Despite the Court of Appeal’s decision in Hayes, the jurisdiction of an arbitrator to make equitable orders in British Columbia has come under some question as a result of the recent decision of the Supreme Court of Canada in British Columbia (Forests) v. Teal Cedar Products Ltd.21 In that case, the arbitrator awarded Teal Cedar Products Ltd., a forestry company, over $6.3 million, which included an award of approximately $2.2 million in interest compounded annually as a result of the province’s decision to reduce Teal Cedar Products Ltd. annual allowable cut. At issue before the Court was whether the arbitrator had jurisdiction to award compound interest.
In a unanimous decision, the Court held that an arbitrator cannot award compound interest by operation of section 1 of the Court Order Interest Act and section 28 of the Act. Rothstein J., writing for the Court, explained:
As discussed above, s. 1 of the [Court Order Interest Act] provides that a court must add interest to a pecuniary judgment. Section 28 of the [Act] deems the amount ordered to be paid by an arbitration award to be a pecuniary judgment of the court. The effect of that deeming rule is that an arbitrator must apply the provisions of the [Court Order Interest Act]. Since pecuniary court judgments have simple, not compound, interest added to them by operation of the [Court Order Interest Act], the ordinary meaning of s. 28 is to cause simple, not compound interest to be added to the sum directed to be paid by an award.22
A further point argued by Teal Cedar Products Ltd. was that the arbitrator had jurisdiction to consider equitable grounds in awarding compound interest, which is generally accepted as a better method of capturing the full amount of the loss. Justice Rothstein dismissed this argument holding:
…The arbitrator in this case did not have jurisdiction to consider equity. Under the [Act] arbitrators can only consider equitable grounds where the parties specifically agree (s. 23). In this case, the agreement between Teal and the Province did not permit the arbitrator to deal with equitable ground.23
It is evident that Mr. Justice Rothstein accepted a narrow interpretation of the language “reference to law” found in section 23 of the Act to mean only the common law. This is consistent with the Court of Appeal’s findings in Randhawa and in contradiction with the decision in Hayes. Although his Lordship’s comments were made without reference to prior case law on the point, it nevertheless is a statement from the highest court of Canada and, as such, is the current law on this point. Accordingly, if parties intend an arbitrator to have authority to award equitable remedies, this should be expressly stated in the arbitration agreement or otherwise in accordance with section 23 of the Act.
Stay of Judicial Proceedings
Although a contract may have an arbitration clause, parties may still commence legal proceedings to resolve a dispute. However, where the Act applies, section 15 makes it mandatory for the Court to order a stay of proceedings in relation to any matter that is agreed to be submitted to arbitration. The salient subsections are as follows:
15 (1) If a party to an arbitration agreement commences legal proceedings in a court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, party to the legal proceedings may apply, before filing a response to civil claim or a response to family claim or taking any other step in the proceedings, to that court to stay the legal proceedings.
15 (2) In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed. (underline added)
In Prince George (City of) v. A.L. Sims & Sons Ltd.24, the Court of Appeal explained:
There are three prerequisites to the application of s. 15. They are:
- the applicant must show that a party to an arbitration has commenced legal proceedings against another party to the agreement;
- the legal proceedings must be in respect of a matter agreed to be submitted to arbitration; and
- the application must be brought timely, i.e. before the applicant takes a step in the proceedings25.
Timing of the application for a stay of proceedings is, therefore, critical and a party to an arbitration agreement must be cognizant of its application in the face of legal proceedings. A party who files a response to civil claim or otherwise takes other steps in a proceeding may result in the Court refusing to issue a stay.
Whether a party takes a “step in a proceeding” is determined on a case-by-case basis. In Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations26, the authors explain:
Determining whether a step has been taken requires an objective approach. The court must ask itself whether on the facts the parties should be held impliedly to have affirmed the correctness of the proceedings and his or her willingness to go along with the determination by the courts of law instead of arbitration. In this regard, a “step in the proceedings” means something in the nature of an application to the court and not mere talk between solicitors or solicitors’ clerks nor the writing of letters but the taking of some step such that taking out a summons or something of that kind which is in a technical sense a step in the proceedings.27
In multi-party disputes, often a situation arises where only some of the parties are bound by an arbitration clause. In those circumstances, the enforceability of the arbitration clause is sometimes challenged. However, Court of Appeal in Prince George (City of), additionally held this is no bar to a stay of proceedings against those parties bound by the agreement:
[As] a general principle, the mere fact that there are multiple parties and multiple issues which are interrelated and some, but not all, defendants are bound by an arbitration clause, is not a bar to the right of the defendants who are parties to the arbitration agreement to invoke the clause.28
Enforcement and Appeals of an Arbitration Award
Pursuant to section 29 of the Act, an arbitrator’s award may be enforced in the same manner as a judgment upon application to the Court. That section reads:
With leave of the court, an award may be enforced in the same manner as a judgment or Order of the court to the same effect, and judgment may be entered in the terms of the award.
This is fundamentally different from enforcing a settlement reached at mediation where parties must commence an action where the other party fails to comply with the terms of a settlement. In that instance, the non-breaching party must treat the matter as a breach of contract and, as with any contract, prove the terms of the settlement, the breaches and resultant damage.
Once an arbitrator’s award is made, a party has very limited avenues to either appeal the award or set it aside. Section 30(1) states:
If an award has been improperly procured or an arbitrator has committed an arbitral error, the court may
- set aside the award, or
- remit the award to the arbitrator for reconsideration.
Under section 1 of the Act, “arbitral error” means an error that consists of “corrupt or fraudulent conduct, bias, exceeding the arbitrator’s powers, or failure to observe the rules of natural justice”. Whether an arbitrator commits an “arbitral error” will be decided on a case-by-case basis.
As to appeals, the salient parts of section 31 read:
- A party to an arbitration, other than an arbitration in respect of a family law dispute, may appeal to the court on any question of law arising out of the award if
- all of the parties to the arbitration consent, or
- the court grants leave to appeal
- (2) In an application for leave under subsection (1) (b), the court may grant leave if it determines that
- 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
- the point of law is of importance to some class or body of persons of which the applicant is a member, or
- the point of law is of general or public importance.
It is evident from both the language of section 31 and the jurisprudence that significant deference is owed to the arbitrator. In On-Call Internet Services Ltd. v. Telus Communications Company29, the Court of Appeal adopted the words of Mr. Justice Henderson in explaining the purposes of arbitration:
Arbitration is intended to provide a speedy and final resolution of the issues. No party may appeal any aspect of an arbitration as of right. The court retains a certain discretion, to be exercised according to the criteria set out in s. 31(2), to grant or refuse leave after weighing the importance of the result of the arbitration and the point of law invoked …
After most arbitrations, one party or the other, perhaps both, will be unhappy with the result. The substantial constraints on the granting of leave to appeal play an important role in preserving the integrity of the arbitration system. If leave were granted too readily, one of the beneficial and distinguishing features of arbitration (its finality) would be lost.30
Arbitration can be an effective tool in counsel’s dispute resolution arsenal. Often, parties and/or their counsel may rush to commence legal proceedings without due consideration for other options, such as arbitration, as a means of resolving a dispute. Arbitration may not only be cheaper and quicker at achieving a resolution, but it also offers the parties an opportunity to avoid some of the rigours of the adversarial process, which can be especially important where parties have an ongoing business relationship. In addition, the confidentiality inherent in arbitration gives parties the chance to resolve a dispute without the proverbial airing of “dirty laundry” in an open forum such as the courtroom.
Of course, not every case is suited for arbitration. Disputes may arise as to the rules of procedure or the appointment of an arbitrator, which may result in added expenses by the parties. Moreover, in a particularly litigious dispute, proceeding to arbitration may simply add a further layer of appeal. It is, therefore, important for counsel to thoroughly assess the merits of the dispute and determine whether arbitration is appropriate in the circumstances.
1Arbitration Act, RSBC 1996, c 55.