Overview & Facts
In Spirit Bay Developments Limited Partnership v. Scala Developments Consultants Ltd., 2021 BCSC 1415, Spirit Bay Developments Limited Partnership (the “Owner”), contracted with Scala Developments Consultants Ltd. (the “General Contractor”) for the construction of custom homes on Vancouver Island. Subsequent to the General Contractor commencing construction of the custom homes, and without meeting the 60-day notice requirement set out in the termination clause, the Owner terminated the contract and immediately contracted with a different contractor. Notwithstanding the termination, the General Contractor continued its work on the homes that it had already started building.
The General Contractor claimed that its post-termination work was done pursuant to an oral agreement that it had made with the Owner – the agreement being that the Owner would pay for the post-termination work. The Owner denied the existence of such an agreement and failed to pay the General Contractor. Accordingly, the General Contractor commenced a private arbitration seeking payment of all outstanding amounts on its invoices given to the Owner. Generally, the arbitral award was in favour of the General Contractor and, among other things, awarded damages for the post-termination work on the basis of unjust enrichment. The Owner sought, and was granted, leave to appeal the arbitral award on questions of law from the Supreme Court of British Columbia under paragraph 31(1)(b) of the, now repealed, Arbitration Act, RSBC 1996, c 55. The most salient portions of the decision in Spirit Bay relate to: (i) the standard of review applicable to statutory appeals from private arbitral awards, and (ii) court orders for the re-hearing of a dispute before an arbitrator different than the one in the first instance.
(i) Standard of Review – Private Arbitral Awards
In carrying out the standard of review analysis, the court reviewed four cases from the Supreme Court of Canada: (1) Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53, (2) Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, (3) Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, and (4) Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7.
Justice Davies commenced his analysis with a review of Vavilov, which provides that “where the legislature has provided for an appeal from an administrative decision to a court, a court hearing such an appeal is to apply appellate standards of review to the decision” [emphasis added]. Of course, this means that questions of law would be reviewed against a standard of correctness, and questions of fact would be reviewed against a standard of palpable and overriding error. However, Justice Davies noted that prior to Vavilov, the decisions in Sattva and Teal provided that the judicial standard of review for statutory appeals of arbitral decisions on questions of law was "almost always" reasonableness – the exceptions being constitutional questions and questions of law of importance to the legal system as a whole outside the arbitrator’s expertise.
The central question was whether the appellate standards of review imposed upon public administrative decision makers in Vavilov applied, and overrode, the traditionally deferential reasonableness standard applicable to private arbitral awards from Sattva and Teal? In the light of this question, Justice Davies reviewed the recent Wastech decision and noted that the majority of the Supreme Court of Canada court declined to clarify what effect, if any, Vavilov has on Sattva and Teal.
So, in the face of the uncertainty, which standard of review did Justice Davies apply to the statutory appeal of the private arbitral award in Spirit Bay: reasonableness per Sattva and Teal, or the appellate standards per Vavilov? In concluding that the standard of reasonableness applied, Justice Davies stated that “[a]lthough…the majority in Wastech has allowed some uncertainty in administrative law to continue, I am satisfied that stare decisis requires that the reasonableness standard enunciated in Sattva and Teal Cedar must still be applied in determining the issues raised on this appeal.” Those issues, of course, were questions of law.
(ii) Re-Hearing before a Different Arbitrator
Following an analysis of the case law relied upon in the arbitral award, Justice Davies found that the appeal should succeed on the ground that the arbitrator had unreasonably erred on questions of law related to contractual interpretation and unjust enrichment. Justice Davies opined that the arbitrator failed to make necessary findings of fact related to the terms of the post-termination contract. Accordingly, the arbitrator noted that it was unreasonable for the arbitrator to find an absence of a juristic reason for the Owner’s non-payment without clear findings as to the terms of the post-termination contract. Consequently, the court ordered that the parties undergo a re-hearing to conduct the necessary fact-finding and accordant application of the law.
Interestingly, Justice Davies ordered that the re-hearing of the specific issues be conducted by a different arbitrator. This order was influenced by the British Columbia Supreme Court decision in British Columbia Nurses’ Union v. British Columbia (Labour Relations Board), 1995 CarswellBC 992. In BCNU, the court opined that “when a decision turns, as the case at bar does, on a disputed issue of credibility, it is approaching the impossible to ask the tribunal of first instance to revisit the matter with a view to possibly reversing those findings and making new findings.” In Spirit Bay, Justice Davies opined that the arbitrator of first instance “made findings of credibility adverse to Spirit Bay's representatives” and “harshly characterized Spirit Bay's conduct in relation not only to the disputes in issue but also within the arbitration.” Accordingly, and notwithstanding the potentially prohibitive expense, Justice Davies ordered that the re-hearing be conducted by a different arbitrator.
Until clarified by the Supreme Court of Canada, there remains uncertainty in which standard of review is applicable to statutory rights of appeal from private arbitral awards in Canada. At least for now in British Columbia, it seems that the deferential standard of reasonableness will apply. Additionally, Spirit Bay serves as a warning to arbitrators and disputants that findings adverse to a party’s credibility invite the potential of a re-hearing before a different arbitrator (and the additional time and costs attached thereto). Accordingly, Spirit Bay underlines the importance of parties to a construction dispute appointing an arbitrator who has both experience with the underlying legal issues and a track record of impartiality and independence. Retaining counsel well-versed in contract law also mitigates the risk that relevant authorities governing the principles of contractual interpretation and unjust enrichment will be misapplied. Although trite, Spirit Bay also serves as a reminder that contractors should always have a written agreement in place before supplying services or materials to a project. Avoiding the uncertainty and expense of an appeal from an arbitral award is to the benefit of all.