Grounds For Reviewing Arbitration Decisions Are Narrow: B.C. Court of Appeal

A recent decision of the British Columbia Court of Appeal warned that the grounds for reviewing an arbitral award are narrow. In Boxer Capital Corp. v. JEL Investments Ltd., the court noted that arbitral dispute had gone through two separate arbitrations and nine (yes, nine) judicial proceedings already. The Court of Appeal said: “Surely that procedural history is inconsistent with the objectives of commercial arbitration.” The court held that the motion judge had no basis to over-turn the last arbitral award and re-instated that award.


The issue in the appeal was whether the second arbitrator was bound by principles of res judicata arising from the award of the first arbitrator or the decision of the judge who heard an appeal from that first award. The second arbitrator held that he was not bound by those decisions by reason of res judicata. The judge hearing an appeal from that decision held that the second arbitrator was so bound. I wrote about that decision in my article of February 17, 2014.

From that latter decision an appeal was taken to the British Columbia Court of Appeal.

The B.C. Court of Appeal’s decision

The B.C. Court of Appeal agreed with the arbitrator. The issue turned upon whether the issue before the second arbitrator was the same as the issue before the first arbitrator or the court which heard the appeal from the first award. The Court of Appeal held that it was not:

“Respectfully, Mr. Justice Abrioux erred in characterizing the issues so broadly, and in finding that they had been the same throughout. When the issues are properly framed, it becomes apparent that they are quite different. The issue before [the firs] Arbitrator….., as defined by the parties who chose to submit their dispute to him, was whether the shotgun purchase price under the [Co-Owner’s Agreement, or COA] was $1.425 million or $2.19 million. The issue before[the court on appeal from the second arbitral award], as defined by this Court’s decision granting leave to appeal, was whether [the second] Arbitrator “erred in failing to have regard to established principles of law in deciding that a term should be implied”. Finally, the issue before [the second] Arbitrator, again as defined by the parties, was whether the Boxer Parties had a continuing interest in the venture. These are different issues.”

  The B.C. Court of Appeal then concluded:

“It was open to [the second] Arbitrator to construe the COA afresh on the continuing interest issue. It is not for this Court to review the merits of his decision in this regard. His decision is the last word on the interpretation of the COA.”

In the course of making its decision the court made a number of comments about the decision of the Supreme Court of Canada in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53.

First, it distinguished the role of a court in an appeal from an arbitral award from its role in an appeal from another judicial decision; the former role is much more limited than the latter. It said:

Like the present appeal, Sattva dealt with an issue of contractual interpretation. Mr. Justice Rothstein explained that in most cases, issues of contractual interpretation will be important only to the parties themselves, and will not have a broader impact….. However, the role of appellate courts (including the B.C. Supreme Court, when sitting on appeal from an arbitral award) is generally not to provide “a new forum for parties to continue their private litigation” but rather to ensure “the consistency of the law” and decide legal issues of public importance (ibid.). Accordingly, “our legal system leaves broad scope to tribunals of first instance to resolve issues of limited application”…. In sum, “the goals of limiting the number, length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings … weigh in favour of deference to [arbitrators] on points of contractual interpretation”.”

Second, it said that if the principles in Sattva had been applied in the present case, there might have been no appeal from the first arbitral award and the matter might have ended there:

Sattva held that questions of contractual interpretation should almost always be regarded as questions of mixed fact and law…. (Historically they were seen as questions of law.) This means that, after Sattva, leave will rarely be granted to appeal an arbitral award on a question of contractual interpretation. (If Sattva had been decided earlier, leave arguably would not have been granted to appeal the parties’ initial arbitral award and this lengthy saga would have been avoided.)”


As in most debates, defining the question largely defines the answer. The Court of Appeal said this about the exercise involved in defining the question in an appeal from an arbitral award:

“This appeal serves as a reminder of the importance of judicial restraint in the review of arbitral awards, at least in the commercial context. When sitting on appeal from an arbitral award, a court’s jurisdiction is narrow. The inquiry differs fundamentally from a trial, and even from a judicial review of an administrative decision.”

As a result of the new test in Sattva for reviewing arbitration decisions, and the narrow definition of the question involved in the appeal from the second arbitral award, the Court of Appeal held that that question was not the same as the questions in the first arbitration or the appeal from the first arbitral award.

This decision does not mean that the doctrine of res judicata should be applied narrowly by arbitral tribunals. It means that, in reviewing a decision by an arbitrator about that doctrine, the court has a very narrow jurisdiction. If the arbitrator has the jurisdiction to determine whether the doctrine applies or not – and that was not doubted in the present case – then the conclusions of the arbitrator must be accepted, unless the arbitrator’s errors about those matters result in a complete loss of jurisdiction or an error on a pure question of law.

In any event, this decision can go down as Exhibit A about how arbitration can lead to expense and delay if the procedures get out of hand. As I said in my February 12, 2014 article about the lower court decision in this case, “proponents of arbitration may wonder if there are better ways to find speedy justice. The parties selected arbitration presumably to avoid the costs and delays of the court system. That objective was not achieved in the present case.”

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, part 3.

Boxer Capital Corp. v. JEL Investments Ltd., 2015 CarswellBC 96, 379 D.L.R. (4th) 712

Arbitration – Appeal – Res Judicata – Standard of Review – Shot-gun agreements

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                March 13, 2015

What Is The Effect Of Res Judicata On Arbitration?

The recent decision of the British Columbia Supreme Court in Boxer Capital Corp. v. JEL Investments Ltd. raises some fascinating issues with respect to the application of the doctrine of res judicata to the arbitration process.  The court effectively held that res judicata applies with all its force and effect to arbitration.  For this reason, the court set aside an arbitral decision which did not follow or apply a previous arbitration decision and court decision arising in the same dispute.

The proceedings in this case also raise concerns about the ability of arbitration proceedings to deal with disputes on a cost and time effective basis.  This dispute about $750,000 arose in May 2008 and has already been through two arbitral hearings and several trips to the British Columbia courts, and this latest decision was rendered on December 27, 2013 five and a half years after the dispute arose.

The Background

Boxer and JEL were parties to a property development agreement. Boxer had contributed more money to the project than JEL. The agreement contained a shot-gun agreement whereby one party could give notice that it would sell its interest to the other.  Failing the receiving party’s agreement to buy, the receiving party was required to sell at the same price.  JEL gave notice in May 2008 that it was willing to sell its interest in the project for $1.425 million. Boxer declined the offer so it was obliged to sell for that price to JEL. Boxer took the position that it was entitled to receive an amount from JEL which would equalize the difference in their respective capital contributions. Boxer said that JEL would have to pay an extra $765,732.26 to compensate Boxer for the additional capital funds invested by it at the time the property was purchased. JEL said that it was not obliged to pay for that interest or capital contribution and that the monies it would pay as a result of the buy-sell process included whatever obligation it had to pay Boxer for its larger capital contribution.

The Arbitration and Court Proceedings

The parties went to arbitration.  In March 2009, the arbitrator found that JEL was obliged to buy Boxer’s interest for $1.425 million plus a capital adjustment payment of $765,732.26. The arbitrator held that the obligation to pay the capital adjustment payment arose from an implied term in the agreement.

JEL did not comply with the arbitration award. So Boxer commenced an action to specifically enforce that award.  In August 2009, the B.C. Supreme Court issued an order enforcing the arbitration award and incorporated the award into its judgment as a judgment of the court.  The order directed JEL to pay the $1.425 million amount and as well the $765,732.26 capital adjustment amount.  There was no appeal from this order.

In the meantime, JEL sought leave to appeal the 2009 arbitration award to the British Columbia Supreme Court.  Leave to appeal was denied and JEL appealed to the B.C. Court of Appeal and in March 2011 the B.C. Court of Appeal allowed the appeal and granted leave to JEL to appeal from the 2009 arbitration award.

In that appeal, in August 2011 the B.C. Supreme Court held that JEL had validly acquired Boxer’s shares pursuant to the shotgun clause but the court set aside the part of the arbitrator’s award that require JEL to pay the capital adjustment payment. The court agreed with Boxer that it was entitled to be paid the capital adjustment amount but held that Boxer was not entitled to that amount at the time of the buy-out but only when the project became profitable as a first charge on any profits.  The court held that JEL did not purchase or acquire the disproportionate capital contribution made by Boxer, and that that contribution remained “in the project” to be paid out of the project pursuant to the agreement, if and when profits were earned. No appeal was taken from that decision.

The purchase by JEL of Boxer’s interest proceeded and JEL paid the $1.425million to Boxer. JEL took the position that Boxer no longer had any interest in the project.  In December 2011, so Boxer commenced an action to enforce its right to the capital adjustment amount.  JEL brought a motion to stay the action and in May 2012, the action was stayed and Boxer’s claim was directed to proceed by way of arbitration.

The arbitration awards were dated August and December 2012. The arbitrator held that he was not bound by the prior arbitration award or decisions of the B.C. courts.  The arbitrator held that Boxer was not entitled to a capital adjustment amount and that Boxer no longer had any interest in or claim arising from the project.

Boxer sought leave to appeal the 2012 arbitral decisions and in April 2013 leave was granted. JEL appealed to the B.C. Court of Appeal and in June 2013 that appeal was dismissed.

The appeal from the 2012 arbitration decisions was allowed in December 2013. In case you are still following this saga, the proceedings have now been before two arbitrators, before the B.C. Supreme Court five times and before the B.C. Court of Appeal twice. And appeals to the B.C. Court of Appeal and Supreme Court of Canada are still possible.

2013 Decision of the B.C. Supreme Court

The B.C. Supreme Court held that the parties to the 2012 arbitration were bound by the principle of res judicata arising from the 2009 arbitration and the 2011 decision of the B.C. Supreme Court.  Both those decisions had found that Boxer was entitled to the capital adjustment amount. The only difference between those decisions was in relation to the timing of the payment of that amount and whether it was required to be paid at the time of the buy-out (as the 2009 arbitrator found) or at the time the project became profitable (as the 2011 judge found).  Accordingly, the arbitrator had erred in holding that those decisions were not binding upon him.

The B.C. Court essentially found that the 2012 arbitrator was not at liberty to go behind – or “deconstruct” as the 2012 arbitrator said – the 2011 decision of the B.C. Court.  It said:

“Both [the 2009] Arbitrator and [the 2011 judge] interpreted the agreement and found, for different reasons, that the $1.425 million did not include the disproportional capital amount and yet, [in] his first partial award, [the 2012] Arbitrator stated:… ‘I am not bound by [2011 judge’s] reasoning….With great respect to [the 2011 judge], J., I do not agree with his interpretation of the COA on this issue.’

In my view it was an error of law for [the 2012] Arbitrator to “deconstruct” [the 2011 judge’s] reasoning and interpretation of the COA so as to “arrive at an opposite conclusion” regarding the ownership of the disproportionate capital, specifically whether it was included in the undisputed $1.425 million. This was the exact same issue as the one considered by both [the 2009] Arbitrator and the [2011 judge]…”

The 2013 judge also held that the 2012 arbitrator erred in exercising discretion not to enforce the principle of res judicata.  It said:

“Secondly, I disagree that it would be manifestly unfair and would work an injustice to JEL to apply the doctrine of issue estoppel in this case. Discretion must be exercised judicially. In my view, discretion judicially exercised should lead to the opposite conclusion to that reached by [the 2012] Arbitrator. The proper exercise of discretion would work as a grave injustice to Boxer …if the doctrine of issue estoppel were not applied in the circumstances of this case.”


The res judicata issue is an extremely important one for the law of arbitration.  That is because arbitration – or at least domestic arbitration – exists within a legal framework that includes two systems, courts and arbitrators. The principle of res judicata is one means by which that relationship is governed as the courts can over-rule an arbitral tribunal if it does not abide by a prior court decision. To maintain the proper balance between the two systems, it could be argued that the court should have due respect for the arbitral system and not impose an unduly strict regime of res judicata on arbitrators, and arbitrators should have due respect for the court’s decisions and make decisions which respect the integrity of those decisions.

What can we learn from the present decision?

First, the decision of an arbitral tribunal about res judicata will be reviewed on a standard of correctness. That is exactly what the 2013 judge has held. No respect for judgment or error will be accorded to the arbitral tribunal on this issue.

Second, it seems clear from this decision that the principle of res judicata does apply to arbitral decisions. Nobody asserted to the contrary in this case and the court clearly applied that principle.

Third, the principle of res judicata applies with the same strictness as it does to a court. Again, no-one apparently argued that there should be some leeway for the arbitral tribunal, on the ground that arbitration is a less formal and legal system than the court system.  Neither side argued that there was a public policy rational for a less lenient approach to res judicata in arbitrations than in court proceedings.  There is no hint of leniency in this decision.

Fourth, the courts will expect arbitral tribunals to give a broad and purposeful interpretation and effect to the court’s prior decisions.  In this case, the court appears to have been impatient with the 2013 arbitrator’s effort to fully understand the 2011 decision of the court.  The court did not accept that the arbitrator had any jurisdiction to disagree with that decision or to be technical with its interpretation.

And Fifth, the courts will expect the parties to exhaust their appeal rights from an arbitral decision before asserting in a subsequent proceeding that the arbitral decision or the court’s review of it was wrong.  In the present case, the failure of JEL to appeal the finding of the 2011 judge that Boxer had a remaining entitlement to the capital adjustment amount was fatal to its efforts to uphold the 2013 arbitral award finding that Boxer had lost its entitlement to that capital adjustment amount.

Proponents of arbitration may wonder if there are better ways to find speedy justice.  The parties selected arbitration presumably to avoid the costs and delays of the court system. That objective was not achieved in the present case.

Boxer Capital Corp. v. JEL Investments Ltd. 2013 CarswellBC 3913, 2013 BCSC 2366

Arbitration – Res Judicata – Standard of Review – Shot-gun agreements

Thomas G. Heintzman O.C., Q.C., FCIArb                                                     February 10, 2014