Can You Change Horses When Appealing From An Arbitration Decision?

Arbitration and court proceedings may be different, but can a party substantially change its position when it appeals from an arbitration award to the court?  At the very least, it seems like questionable strategy to do so.  The British Columbia Court of Appeal held that the appellant could not do so in VIH Aviation Group Ltd v. CHC Helicopter LLC.

The Background

VIH asserted the right to terminate a joint venture between the parties.  CHC referred the matter to arbitration.  The arbitral tribunal held that the termination was invalid and that the joint venture agreement continued in force.  VIH sought leave to appeal from that decision.  Leave to appeal was denied by the BC Supreme Court and that decision was upheld by the BC Court of Appeal.

VIH had asserted the right to terminate the joint venture because it said that CHC had gone through a corporate re-organization that constituted the sale or transfer of all or substantially all of its assets.  VIH said that such a sale or transfer triggered its right to terminate the joint venture agreement under a specific term of that agreement.

Before the arbitral tribunal, both VIH and CHC took the position that the term ought to be interpreted to require the arbitral tribunal to determine whether the re-organization had, in a “qualitative” way, changed the nature of CHC’s business.  The real issue before that tribunal was whether one should look at the integral nature of CHC’s assets and business (as VIH submitted) or the ability of CHC to fulfil its obligations under the agreement (as CHC submitted).  The arbitral tribunal accepted CHC’s view of this issue, and held that the transfer of assets to CHC’s subsidiary and affiliate did not interfere with its ability to carry out its obligations under the agreement.

In seeking leave to appeal from the BC Supreme Court, VIH took the position that the term in the joint venture agreement should be interpreted in accordance with its plain meaning.  Basically, it said that there was no need to resort to a “qualitative” analysis:  there was either a “sale or transfer” or there wasn’t, and the arbitral tribunal erred in applying the “qualitative” test and holding that there had not been a sale.

The Decision

The BC Supreme Court held that, on a motion for leave to appeal from an arbitral award, a party should not be able to change its position, and on that ground it refused leave to appeal.  The BC Court of Appeal agreed with that view for a number of reasons.

The Court of Appeal noted that there must be an issue of law before leave could be granted under section 31(2) (a) of the BC Commercial Arbitration Act.  It also acknowledged that the application of an improper principle of interpretation to a contract is an error of law.

However, if a party could create an issue of law by asserting one legal principle to the arbitral tribunal and another to the court, that would create mischief.  As the judge of the BC Supreme Court said:  “during the arbitration the petitioners in fact urged on the arbitrators that they were required to follow the very approach that is now criticized by the petitioners as wrong in law.”  The Court of Appeal held that the court correctly exercised its discretion not to permit VIH to raise a point of law for appeal by changing its legal position.

The Court of Appeal said that, even in a motion seeking leave to appeal from one court level to another, the judge hearing that motion normally ought not to allow an inconsistent position to be the basis for the appeal.  It is one thing to argue a new position.  It is another thing to argue a completely inconsistent position and to assert that the lower court erred in adopting the very position asserted by the would-be appellant in the lower court.

The Court of Appeal said that this principle is even more important in a motion for leave to appeal from an arbitral award.  It said:  “Where parties have deliberately preferred arbitration as the method for resolving disputes, it is to be expected that they will fully argue their cases in that forum.” In the Court’s view, “allowing a party to change positions too readily on an arbitration appeal risks subverting the goals of the arbitration process, which is designed to be expeditious and provide finality.”

This decision is a welcome clarification of the power of a court to grant leave to appeal from an arbitral award.  That power does not exist in all jurisdictions.  In Canada, it exists in British Columbia and in those provinces which have adopted the Uniform Arbitration Act of the Uniform Law Conference (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia).  That right to obtain leave to appeal is considered by some to allow the court system to intrude into the arbitration process.

But the VIH decision discounts that fear on two bases:

First, the BC Court of Appeal has affirmed that there is a residual discretion not to grant leave to appeal even if the would-be appellant meets the strict terms of the section permitting leave to appeal.

Second, that court affirmed that the residual discretion can be exercised by considering whether granting leave to appeal supports or subverts the goals of the arbitration process.  If consistently applied, that principle will go a long way toward both upholding the integrity of arbitration and protecting it from unnecessary incursions by the court system.

Potential Impact on “As-of-Right” Appeals

The VIH decision may also raise an interesting issue if a party has a right to appeal to the courts from an arbitration decision.  Such a right exists in Prince Edward Island if the arbitration agreement so provides.  Other provinces have adopted the provision in the Uniform Arbitration Act of the Uniform Law Conference of Canada allowing the parties to insert a right of appeal (and not just appeal with leave) into their arbitration agreements.  Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia have adopted that provision.

If a party has a right of appeal, should the appeal court allow the appellant to assert a position before the appeal court that is contrary to the position it asserted before the arbitral tribunal?  Should the appeal court treat the matter as though it were an appeal from another court?  Or does the appeal court have a discretionary power to dismiss the appeal because, to do otherwise, would subvert the arbitration process?  For an answer to those questions, we must wait for a party to be brave or unwise enough to change its position in an as-of-right appeal from an arbitration decision.

Arbitration   –   Appeal   –   Change of Position

VIH Aviation Group Ltd v. CHC Helicopter LLC, 2012 BCCA 125

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                               April 10, 2012