Questions of Mixed Fact and Law on Contractual Interpretation: A Preliminary Study of the Supreme Court of British Columbia’s Decision on Gormac Developments Ltd. v. Teal Cedar Products Ltd., 2020 BCSC 712 – WriteToLearn Evening Notes
The contractual interpretation is an exercise involving either a question of law or a question of mixed fact and law (para. 45 of Sattva). The questions of mixed fact and law involve aspects of law (para. 45 of Teal Cedarand para. 65 of Richmont Mines). And the Canadian courts may grant leave to appeal if the aspects of law in the contractual interpretation could be extricated from the factual matrix and if the questions of law have the degree of generality or a “great precedential value” (see para. 37 of Southamand Art. 31 (2) Arbitration Act, RSBC 1996, c55). A narrow scope for extricable questions of law is defined by the Canadian courts in order to keep consistent with the key policy objectives of consensual arbitration, namely efficiency and finality.
Background
In 1992, Fletcher Challenge Canada Ltd. and Interline Construction Ltd. signed a contract titled “Road Construction Agreement – 2 Year Replacement (Coastal Crown Tenure)”. They are the original parties of the Contract.
In early 1993, Gormac and Teal became the parties of the Contract. The contract was a “replaceable contract” pursuant to the Timber Harvesting Contract and Subcontract Regulation, B.C. Reg. 22/96, formerly B.C. Reg. 258/91.
In December 31, 1993, the Contract expired. However, Gormac and Teal agreed to abide by the Contract until they could reach a new agreement, which was not yet been reached.
In August and September of 2015, the parties attended an arbitration. Gormac learnt that Teal was using another contractor to perform road reconstruction and road rehabilitation. Gormac argued that it was entitled to that work according to the Contract. Teal argued that road reconstruction and road rehabilitation were not included under the terms of the Contract. The arbitrator considered that the dispute arose from the fact that Teal began to harvest less old growth and more second growth timber, which resulted in less new road construction and more road reconstruction and road rehabilitation work to access the second growth areas.
On November 26, 2015, the arbitrator issued the Final Partial Award (“Award”). The arbitrator decided and declared that: (a) the Contract does not include replaceable road reconstruction or road rehabilitation work; and (b) Gormac failed to establish that it was entitled to a replaceable contract for road reconstruction and/or road rehabilitation work based on the work it performed in 2003 (para. 11 of Gormac).
On January 22, 2016, Gormac filed a petition seeking leave to appeal from the Award according to s. 31 of the Arbitration Act, RSBC 1996, c55 before the Supreme Court of British Columbia.
On May 7, 2020, Madam Justice Elizabeth McDonald decided that the contractual interpretation issue raised by Gormac involved a question of mixed fact and law and that she was unable to find any extricable questions of law with the degree of generality in this issue. McDonald J. concluded that as Gormac failed to establish the extricable question of law in its issue, the Court does not need to consider whether any of the circumstances set out in s. 31 (2) of the Arbitration Act exist. Thus, the petition is dismissed.
Applicable Laws and Regulations (non-exhaustive list)
Section 31 (2) of the Arbitration Act, RSBC 1996, c55 (“Act”) provides the conditions in which the court may grant leave to appeal on the questions of law arising out of the arbitral award.
Section 152 of the Forest Act, R.S.B.C. 1979, c. 140 provides the definition of “replaceable contract” in the forest industry.
Section 22 of the Timber Harvesting Contract and Subcontract Regulation, B.C. Reg. 258/91 provided the definitions of “contract”, “sub-contract” and “phases of a timber harvesting operation”.
Para. 54 and 72 of MSI Methylation Sciences, Inc. v. Quark Ventures Inc., 2019 BCCA 448 summarized the principles that apply to an application for leave to appeal under the Act. The para. 72 is worth reproduced in full:
[72] From these authorities, and having in mind the legislative evolution of s. 31 of the Arbitration Act, I draw the following principles in relation to appeals from arbitration awards:
(a) Appeals are limited to questions of law arising out of the award. If the proposed question is not a question of law arising out of the award, there is no jurisdiction to grant leave to appeal.
(b) A question of law may be explicit or implicit in the award. If the question of law is explicit in the award, the statutory precondition is met. If the asserted question of law is implicit in the award, in the sense that it must be extricated from the application of the law to the facts, care must be taken to distinguish between an argument that a legal test has been altered in the course of its application (a question of law) and an argument that application of the legal test should have resulted in a different outcome (a question of mixed fact and law).
(c) One means of determining whether the challenged proposition is a question of law or part of a question of mixed fact and law is to consider the level of generality of the question. If the answer to the proposed question can be expected to have precedential value beyond the parties to the particular dispute, the question is more likely to be characterized as a question of law. On the other hand, if the answer to the proposed question is so tied to the particular circumstances of the parties to the arbitration that its resolution is unlikely to be useful for other litigants, the question will likely be considered a question of mixed fact and law. I would add to this that when the “question” is stated as a ground of appeal that is integrally tied to the facts of the case, it will more likely be characterized as a question of mixed fact and law, the answer to which cannot be of general application because of the integration of the particular facts of the case to the question. The more the question can be abstracted from the particular facts to a question of principle, the more likely it is that the challenged proposition will be characterized as a question of law with potential precedential value.
(d) A narrow scope for what constitutes extricable questions of law is consistent with finality in commercial arbitration. (emphasis added by the author)
Para. 45 of Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 and Para. 45 of Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, the Supreme Court of Canada repeatedly emphasized that the questions of mixed fact and law involve aspects of law and that the Canadian courts may grant leave to appeal if the aspects of law in the contractual interpretation could be extricated from the factual matrix and if the questions of law have the degree of generality or a “great precedential value”.
Analysis
1. Did the Arbitrator fail to apply the correct legal test when he failed to consider that the aggregate of road construction contract work performed by Gormac met the six-month threshold for a replaceable contract under the Regulation?
No. The paras. 6 and 7 of the Award identified the applicable statutory provisions, on which Gormac agreed. The paras 103, 106, 110 to 114 of the Award explained the reasons why the Arbitrator applied the six-month test individually to each of Gormac’s road construction obligations under the Contract instead of the aggregate of Gormac’s work in a particular year. McDonald J. found that this issue was an implicit question of law and the application of the legal test i.e. “six-month test” could have resulted in different outcomes (para. 32 of Gormac). Moreover, McDonald J. found that the alleged error was too integrally tied to the particular facts of the case to be considered as an extricable question of law with the degree of generality.
2. Did the Arbitrator fail to construe the whole of the Contract? Did the Arbitrator err in excluding “road reconstruction” and “road rehabilitation” from “road construction”?
No. The arbitrator is not required to explicitly refer to every statutory provision, every submission or every piece of jurisprudence in his decision, nor is he required to make specific findings on each constituent element for his decision to be reasonable (para. 45 of Gormac).
In fact, the para. 40 of the Award stated that the extracts from the Contract are set out for convenience only and that the Arbitrator did have considered the interpretation issue in the context of the Contract as a whole. The para. 49 of the Award set out the principles of contractual interpretation on which both parties agreed. The paras. 94 and 102 of the Award provided the analysis of the meaning of “road construction”, “road rehabilitation” and “road reconstruction”. The Award stated “the absence of any mention of road reconstruction and road rehabilitation in Schedule “A” reinforces that interpretation as do the payment provisions such that on a plain reading of the contract as a whole I find that the original parties agreed and intended at the time the contract was entered into to include only new road construction and not reconstruction and road rehabilitation work. This conclusion is bolstered by the circumstances surrounding the parties’ entry into this Contract in April 1992.” (para. 41 of Gormac)
Furthermore, there is no suggestion that the Contract is a standard form contract that is widely used in the forest industry (para. 67 of Richmont Mines). Thus, McDonald J. stated that the arbitrator’s interpretation of the Contract is inextricably bound up with the evidence about the parties’ original intentions and the rest of the factual matrix. As a consequence, McDonald J. concluded that even if Gormac had correctly identified an error in the Arbitrator’s decision regarding the interpretation of the Contract, the Court was unable to consider it as an error of law that could be extricated from the factual matrix of the present case (para. 43 of Gormac and para. 72 of Richmont Mines).
Conclusion : que faut-il retenir?
L’interprétation contractuelle s’agit d’un exercice impliquant soit une question de droit, soit une question mixte de fait et de droit. Les questions mixtes, par définition, comportent des aspects de droit. Une erreur d’interprétation contractuelle dans la sentence arbitrale peut donner lieu à une question de droit isolable lorsque la question de droit aurait une valeur de précédent ou lorsque le décideur initial a considéré un principe incorrect. Une conception étroite des questions de droit isolables s’accorde avec le caractère définitif de l’arbitrage conventionnel et avec la déférence à l’égard des conclusions de fait. Les tribunaux canadiens font preuve d’une grande déférence envers les sentences rendues par voie d’arbitrage conventionnel. Veuillez noter que la Colombie-Britannique a adopté une nouvelle loi pour moderniser son système sur l’arbitrage domestique en mars 2020.
一般情况下，合同条款解释问题属于法律问题或法律与事实相混的问题。当仲裁员对合同解释中法律问题部分的裁决具有一定的先例价值时（比如，所涉合同条款是某行业普遍适用的格式条款），或当仲裁员引用了错误的合同解释原则来解释合同条款时，该合同解释将构成加拿大哥伦比亚省仲裁法第31条第1项中所提到的可分割的法律问题。如果该可分割的法律问题满足该仲裁法第31条第2项的条件，法院将允许纠纷当事人对该问题向法院提起上诉。对可分割的法律问题进行狭义定义不仅符合仲裁程序“一裁终局”的特征，而且展现法院尊重“以事实为依据”以及“合同应依据当事人各方签订合同时的共同意图予以解释”这些基本原则。加拿大英属哥伦比亚省最高法院的麦当劳法官对Gormac案的判决突出体现了加拿大法院对仲裁裁决的尊重与支持（Arbitration Matters – Me Daniel Urbas’s Notes及Case Comments of Kenneth Glasner, Q.C.）。
(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. ?)