This post aims to summarize the analysis of the British Columbia Court of Appeal’s recent decision on Grewal v. Mann, 2022 BCCA 30. By dismissing an appeal of an order granting leave to appeal an arbitral award, the British Columbia Court of Appeal reminds us that in interpreting a contract, the arbitrator must not permit the factual matrix to “overwhelm” the words of the contract
Factual Background
In 2008, when Plaintiff and Defendants were business partners, they purchased a real property located in Gibsons together with several other individuals.
On or around May 27, 2014, the parties agreed to start separating all their business and financial affairs through mediation and arbitration with Mr. Wally Oppal, Q.C. acting as a mediator and, if necessary, arbitrator.
On October 30, 2015, Plaintiff and Defendants entered into a binding settlement agreement recorded in an email exchange between counsel (the “Agreement”). The Agreement required Defendants to pay Plaintiff $18.6 million in instalments and transfer to Plaintiff their interests in the Gibsons Property. The Agreement also states that an appraisal of the value of the parties interest in the land will be conducted by an appraiser appointed by Mr. Oppal.
In March 2016, Mr. Oppal appointed Mr. Steckley to conduct an independent appraisal of the market value of the Gibsons Property as at October 30, 2015.
On April 11, 2016, Mr. Steckley issued his opinion, in which he concluded that the value of the Gibsons Property as of October 30, 2015 was $4,040,000.
By June 2017, Defendants had still not signed quit claims of their beneficial interests in the Gibsons Property, and would not allow the sale to complete unless Plaintiff signed a direction to hold 50% of the proceeds in trust. Plaintiff acceded to the condition, reserving his rights to the proceeds based on the terms of the settlement. The Gibsons Property was sold on June 23, 2017 for $7,980,000. The funds were disbursed to the other owners, leaving some $3.4 million in trust, representing the value of the parties’ interest in the Gibsons Property. While the parties agree that Plaintiff was entitled to $2 million of that sum. They disagreed about who was entitled to the remaining $1.4 million.
In December 2019, Mr. Oppal, acting as the parties’ arbitrator heard the merits of their dispute.
On May 15, 2020, the arbitrator Mr. Oppal rendered the final award (“Award”), in which Mr. Oppal concluded that Defendants were entitled to the amount remaining after $2 million was paid to Plaintiff. The Award is relatively brief, consisting of 13 paragraphs, ten of which are about the facts and the parties’ positions.
Procedural History
Pursuant to Section 31 of the Arbitration Act, RSBC 1996, c 55, Plaintiff applied for leave to appeal the Award rendered by Mr. Oppal in the Supreme Court of British Columbia on May 15, 2020.
On January 18, 2021, the Supreme Court of British Columbia granted Plaintiff’s leave to appeal (Grewal v Mann, 2021 BCSC 220).
On October 22, 2021, the Supreme Court of British Columbia heard the merits of the appeal (Grewal v Mann, 2022 BCSC 555).
On November 29, 2021, the Court of Appeal for British Columbia heard the appeal of the order (Grewal v Mann, 2022 BCSC 555). On January 28, 2022, the Court of Appeal for the British Columbia dismissed Defendants’ appeal of the decision (Grewal v. Mann, 2022 BCCA 30).
Main Issue to Analyse
- What is the standard of review?
- Whether Mr. Oppal, the arbitrator’s interpretation of the Agreement was wrong or unreasonable?
Court’s Analysis
- The Court reviews the Award on the reasonable standard.
The Court analyzed the key case law on the issue of standard of review: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (para. 106); Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (para. 1); Allstate Insurance Company v. Her Majesty the Queen, 2020 ONSC 830; Cove Contracting Ltd. v. Condominium Corporation No. 012 5598 (Ravine Park), 2020 ABQB 106; especially Spirit Bay Developments Limited Partnership v. Scala Developments Consultants Ltd., 2021 BCSC 1415.
The Court confirmed that as Vavilov does not refer to Sattva or Teal Cedar, the Supreme Court of Canada has not overruled those decisions. Therefore, “as it now stands, Teal Cedar is binding authority. InTeal Cedar, the Supreme Court of Canada emphasizes that in British Columbia, while there is limited jurisdiction for appellate review of arbitration awards, the deferential standard of review – reasonableness – “almost always” applies to arbitration awards.
Therefore, the Court conclues that the reasonableness standard applies.
2. The Court concludes that the Award creates a new agreement between the parties that is materially different from the Agreement even on a deferential reasonableness standard. The Court stated that the arbitrator’s interpretation of the Agreement was wrong or unreasonable.
The key paragraphs of the Agreement for interpretation in the present case are the Paragraph 4 and 8, which is provided as follows:
“4. All Mann and Bains’ interest in Gibsons transferred to Sukhi. Mann and Bains will quit claim their interests in the property and their shares in the bare trustee will be redeemed for $1. An appraisal of the value of the parties interest in the land will be conducted within 30 days by an appraiser appointed by the meditator [sic]/arbitrator. If the value of the interest of the parties in the land is less than $2,000,000, the difference between $2,000,000 and that lesser value will be added to the payment in paragraph 2 above. If the value of the interest of the parties in the land is greater than $2,000,000, the difference between $2,000,000 and that greater value will be deducted from the payment in paragraph 2 above…8. The purpose and intent of this agreement is that all of Grewals [sic] interest in the jointly held businesses, other than Gibsons, will be transferred to Mann and Bains or their nominees and Mann, Bains and the jointly held companies will have all benefit of, and all liability for those businesses and properties.“
The Court read the Award rendered by Mr. Oppal and started the analysis by reminding the readers that “in interpreting a contract, an arbitrator’s task is to interpret the words of the contract informed by the factual matrix; the arbitrator must not permit the factual matrix to ‘overwhelm’ the words o the contract.” In paragraph 4 of Teal Cedar, the Supreme Court of Canada noted that the arbitrator’s interpretation of the factual matrix should not be isolated from the words of the contract. In paragraph 35 of Corner Brook (City) v. Bailey, 2021 SCC 29, the Supreme Court of Canada noted that the goal of contractual interpretation is to ascertain the objective intention of the parties at the time of contract formation. In order to ascertain the objective intention of the parties, the arbitrator’s interpretation is expected to remain grounded in the text of the contract so as to avoid effectively creating a new agreement between the parties (para. 16 of the Decision).
In the present case, the para. 4 of the Agreement clearly and unambiguously requires Defendants to transfer their interest in the Gibsons Property to Plaintiff; assumes that the value of the transferred interest is $2 million, and then provides for an adjustment according to the appraised value. The para. 8 confirms this interpretation and states that the intent of the Agreement was for Plaintiff to retain the Gibsons Property and for Defendants to retain all of the other properties.
However, the Award finds that the intent of the Agreement was that Plaintiff received a fixed total amount of $20.6 million, with $2 million representing the assumed value of the Gibsons Property. This conclusion is isolated from the words of the contract.
The Court offered solid reasoning in three layers. First, the Court emphasizes that the paras. 4 and 8, to which Mr. Oppal failed to refer in the Award, explicitly indicate the parties’ intention was to let Plaintiff retain the Gibsons Property and as a consequence, Plaintiff would assume the risks of any subsequent increase or decrease in its value. Second, the Court states that according to the Agreement, Plaintiff was to receive a total in cash and property, the combined worth of which at the time of the transaction was approximately $20.6 million. Mr. Oppal was wrong in concluding that Plaintiff cannot receive more than $20.6 million through this transaction. Third, Mr. Oppal was wrong by placing weight on the Gibsons Property’s sale price in June 2017 as nothing in the words of the Agreement suggests that at the time of the contract formation, the Gibsons Property would be sold. Therefore, the Court concludes that in June 2016, the Agreement contemplates Plaintiff leaving the business relationship with Defendants with the Gibsons Property and a cash payment, and Defendants receiving Plaintiff’s interest in all of the other properties.
Therefore, the Court allows the appeal pursuant to section 31 (4) of the Arbitration Act and amends para.14 of the Award to require that the monies held in trust respecting the remaining proceeds of sale of the Gibsons Property be paid to Plaintiff.
Reflection
In interpreting a contract, an arbitrator’s task is to interpret the words of the contract informed by the factual matrix; the arbitrator must not permit the factual matrix to “overwhelm” the words of the contract. The goal of contractual interpretation is to ascertain the objective intention of the parties at the time of contract formation. In order to reach this goal, the arbitrator’s interpretation is expected to remain grounded in the text of the contract so as to avoid effectively creating a new agreement between the parties.
(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)