Written By David Wahl, Vasilis Pappas, Artem Barsukov and Kassandra Devolin
In its recent decision in Kingsgate Property Ltd. v Vancouver School District No. 39, 2023 BCSC 560, the Supreme Court of British Columbia considered, among other things, whether an arbitral tribunal's interpretation of a prior arbitration award that was rendered under the same agreement to identify possible issue estoppel was a question of law that was appealable to the Supreme Court of British Columbia pursuant to section 31 of the Arbitration Act, RSBC 1996, c 55. The Court found that it was a question of law, and granted leave to appeal.
In 2005, the petitioners in the case, Kingsgate Property Ltd. (Kingsgate) and Beedie Development LP (Beedie), were assigned a lease that was originally entered into between the respondent in the case, the Vancouver Board of Education of School District 19 (the Vancouver Board of Education), and Royal Oak Holdings Ltd. (Royal Oak). That lease commenced in 1972, and was for an initial term of 25 years, with multiple options to renew. Under section 29.09 of the lease, rental payments were to be calculated at 8.25 percent of the market value of the lands.
The First Arbitration
In 1999, an arbitration took place between the original parties to the lease: namely, Royal Oak and the Vancouver Board of Education (the First Arbitration). The First Arbitration was in connection with the interpretation of s. 29.09 of the lease, in order to determine the market value of the property for the term of 1997 to 2007, so that the rent payable for that term could be ascertained. In its decision in the First Arbitration, the tribunal found that the market value of the property under s. 29.09 needed to be calculated with reference to "outright approval use" rather than "discretionary conditional use" under the applicable zoning laws.
The Second Arbitration
Royal Oak assigned the lease to Kingsgate and Beedie in 2005. In 2020, these new parties to the lease commenced an arbitration to assess the market value of the property for the term of 2017 to 2027, in order to calculate the rent payable for that term pursuant to s. 29.09 (the Second Arbitration). Kingsgate and Beedie argued that issue estoppel applied and the previous award from the First Arbitration was binding on the parties in the Second Arbitration.
The majority of the tribunal in the Second Arbitration disagreed, noting there were “strong factors militating in favour of exercising [its] discretion not to apply the doctrine of issue estoppel and instead to apply what it found to be the intended meaning of the Lease." On this basis, the tribunal in the Second Arbitration engaged in an interpretation of s. 29.09 of the lease without considering the 1999 award from the First Arbitration. Contrary to findings in the First Arbitration, the tribunal in the Second Arbitration determined the market value of the lands could be calculated pursuant to s. 29.09 of the lease with reference to "discretionary conditional use" under the applicable zoning laws.
Thus, on January 19, 2022, the majority of the tribunal granted an award which set the market value of the leased lands at $116.5 million. This substantially increased the rent Kingsgate and Beedie had to pay, as compared to the prior lease term. It also created outstanding back rent of $42 million.
Kingsgate and Beedie petitioned the Supreme Court of British Columbia for leave to appeal the tribunal's award in the Second Arbitration pursuant to s. 31 of the Arbitration Act, which provides the following in relevant part:
31(1) 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.
In particular, Kingsgate and Beedie sought leave to appeal the Second Arbitration determination that market value could be calculated with reference to "discretionary conditional use" under the applicable zoning laws in light of the opposite finding in the First Arbitration.
Kingsgate and Beedie argued that the Second Arbitration decision constituted an error on a question of law entitling them to seek leave to appeal pursuant to s. 31 of the Arbitration Act. In response, the Vancouver Board of Education asserted that the Second Arbitration decision was in respect of a question of mixed fact and law, which is not appealable under s. 31 of the Arbitration Act, and alleged that Kingsgate and Beedie were strategically framing the issue as a question of law in order to advance an appeal they were not entitled to bring. The Vancouver Board of Education also asserted that Kingsgate and Beedie were arguing a version of issue estoppel which had not been argued in the Second Arbitration.
The Supreme Court of British Columbia found that interpreting a prior arbitration award for the purpose of considering issue estoppel was more akin to interpreting a statute (a question of law) than a contract (a question of mixed fact and law). In particular, the Court found that such an exercise involved the interpretation of a legal text with binding force to determine the parties' obligations under a legal doctrine. As such, the Court found that the tribunal's ruling on issue estoppel in the Second Arbitration was subject to appeal as a question of law pursuant to s. 31 of the Arbitration Act, and granted leave to appeal.
Conclusion and Key Points
In a commercial agreement subject to multiple domestic arbitration proceedings in British Columbia, the question of whether an arbitration award in one of those prior proceedings under the same agreement results in issue estoppel will likely be considered an appealable question of law, with inconsistent findings to be determined by the Court.
It is important to appreciate that the discussion and authority above applies to British Columbia only, and that the rules governing appeals from domestic awards are different in other provinces in Canada. This, in turn, underscores the importance of carefully selecting the legal seat of arbitration.
All of the above reinforces the importance of obtaining expert advice both when drafting dispute resolution clauses for commercial agreements and when involved in an arbitration proceeding. To discuss your specific needs and to receive tailor-made advice, please contact the Bennett Jones International Arbitration group.