Arbitration is a common dispute resolution mechanism for construction and other commercial litigation matters. One of the main benefits is that arbitrations are typically final and binding, subject to limited ability to seek leave to appeal under provincial arbitration legislation. This encourages settlement due to the finality of an arbitration decision, while also ensuring matters do not drag on for years through appeal proceedings.
The Court here considered the test for leave to appeal an arbitration decision, with a particular focus on the meaning of "the importance to the parties of the matters at stake in the arbitration" in the Alberta Arbitration Act.
Quanta subcontracted Bremar to provide various services for Quanta's manhole project with the City of Calgary. The parties used a CCA 1-2008 Stipulated Price Subcontract, a common standard form contract in Canada. The Parties agreed to submit all disputes arising from the subcontract to arbitration pursuant to the CCDC 40 Rules. The CCDC 40 Rules are standard arbitration rules for construction disputes. Notably, the subcontract did not provide for any appeal rights of the arbitration decision.
The main dispute between the parties was the installation of a duct bank by Bremar. Quanta argued the installation was defective, required Bremar to remove and replace large portions, and withheld funds on that basis. Bremar in turn claimed against Quanta for the cost of performing the work and unpaid holdback. Bremar then commenced arbitration under the subcontract.
At arbitration, the Arbitrator concluded, among other things, that the duct bank work performed by Bremar was not defective. As such, Quanta was responsible for the cost of Bremar's work. Bremar was awarded $8,317,116 plus 80% of its reasonable legal fees, plus disbursements and arbitration expenses.
Quanta sought leave to appeal the arbitration decision. It argued that the Arbitrator made errors of law when interpreting the subcontract. Bremar opposed this, arguing Quanta's grounds of appeal were all questions of fact which failed to meet the test for leave to appeal.
Test for Leave to Appeal an Arbitration Award
The test for leave to appeal an arbitration decision is set out in s. 44 of the Arbitration Act. This section grants parties a very limited right of appeal. All components of section 44 must be met before an appeal on the merits proceeds. The relevant sections here were 44(2) and 44(2.1), which state:
(2) If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a party may, with the permission of the court, appeal an award to the court on a question of law.
(2.1) the court shall grant the permission referred to in subsection (2) only if it is satisfied that
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal, and
(b) the determination of the question of law at issue will significantly affect the rights of the parties.
Analysis
Courts have traditionally not provided a good explanation as to what "the importance to the parties of the matters at stake in the arbitration justifies an appeal" means. Judges have routinely applied their own interpretations of what is important to the parties. This often has resulted in interpretations requiring the matter proposed to be appealed to have some degree of public importance. In recent years, the courts have clarified that public importance is not required for leave to appeal.
The court here held that s. 44(2.1) is truly a materiality test. An appeal must be material to the parties to justify it being heard by the Court. This requires that it must have a significant effect on the parties' rights in a way that is important to the parties. Sizable financial consequences, implications for the business of the parties, or where the decision may have broader precedential value will often be considered "important" to the parties.
Here, the proposed appeal concerned $5,121,518, representing 63% of the total arbitration award. This was large enough to support an inference that the proposed appeal was important to the parties. Further, the proposed appeal also concerned the interpretation of a widely used standard form construction contract. There was precedential value in settling the meaning of the standard form contract, making the proposed appeal "important" to the parties and the broader construction industry. The Court noted there is a public interest in the consistent interpretation of standard form agreements used widely in an industry.
Quanta's grounds of appeal related to the Arbitrator's characterization of Quanta's communications and actions, and the corresponding application of the sections of the subcontract. The Court found that the Arbitrator's legal conclusions could not be intelligibly separated from his fact-finding and characterization of the facts. Thus, the grounds of appeal raised by Quanta were questions of mixed fact and law, and there were no extricable questions of law. Since a prerequisite for leave to appeal under s. 44(2) is that the appeal concerns only questions of law, even though ss. 44(2.1)(a) and (b) were satisfied, Quanta was denied leave to appeal the Arbitrator's decision.
Takeaways
Understanding the key points from this case can help parties navigate the complexities of arbitration and potential appeals.
- Standard contract forms may not contemplate an appeal of an arbitration award. If the parties wish to have appeal rights, this must be addressed at the time of contract drafting.
- If a party is seeking to appeal an arbitration award with no stated right of appeal in the underlying contract, it will need to satisfy the test for leave to appeal in s. 44 of the Arbitration Act.
- This requires first that the appeal concern pure questions of law.
- Once that requirement is met, the importance to the parties to
justify an appeal is engaged.
- Sizable financial consequences, significant business implications for the parties, and broader public precedential value to an appeal are all valid considerations.
Link to decision: Quanta Canada Holdings II ULC v Bremar Construction Ltd, 2024 ABKB 317
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.