Alberta Court of King’s Bench provided valuable guidance on “importance” for purposes of the test for granting leave to appeal an award on a question of law.

Facts

Quanta retained Bremar to install an underground duct bank and manhole system, using a CCC 1-2008 Stipulated Price Subcontract. A dispute arose concerning the responsibility for the costs of removing and replacing sections of the duct bank installed by Bremar. Bremar commenced arbitration, with the Arbitrator deciding in Bremar’s favour and awarding it approximately $8.1m (the “Award”). Quanta sought to appeal the Award.

As the subcontract did not provide for any express right of appeal, permission to appeal the Award under subsection 44(2) of the Alberta Arbitration Act (“Act”) was required. The Act requires that the proposed appeal be on a question of law, and that the Court be satisfied that the criteria set out in subsection 44(2.1) are met. This requires the Court to consider whether:

  1. The importance to the parties of the matters at stake in the arbitration justifies an appeal; and
  2. The determination of the question of law at issue will significantly affect the rights of the parties.

Quanta argued that, as the subcontract was a standard form contract widely used in the construction industry, the Arbitrator’s alleged misinterpretation of the subcontract amounted to an error of law. Meanwhile, as the proposed appeal concerned roughly two-thirds of the total damages awarded ($5.1m of $8.1m), the appeal was of importance to the parties.

Decision

The Court acknowledged that courts have not provided a good explanation as to what is meant by the requirement that "the importance to the parties of the matters at stake in the arbitration justifies an appeal."

Some courts, in Alberta and beyond, have held that this importance must in fact extend beyond the parties, providing some precedential or public value. The Court noted that without any principled framework to guide their reasoning, in each case judges have applied their idiosyncratic senses of what is important to the parties.

The Court held that subsection 44(2.1) of the Act required that an appeal must be material to the parties to justify it being heard by the Court. The Court determined that this was essentially a two-part materiality test and set out the following framework to assess the proposed appeal’s importance to the parties from both a financial and non-financial perspective.

  1. Where the determination of rights, not the value of the dispute, is asserted to satisfy the importance requirement, the appellant bears the burden to establish that the proposed appeal’s impact on the parties’ rights alone is important to the parties. This can be accomplished by showing that the decision has a material effect on the conduct of a party's business or by demonstrating the proposed appeal's precedential value to the parties or the public … [including] an industry.
  2. Where an impact on rights is established and where the value of the dispute is alleged to be the basis that the proposed appeal is important to the parties, the appellant must first establish that the value of the appeal is material to the dispute. If the proposed appeal has the potential to reverse a significant part of the arbitral decision measured in money terms, then it is material to the dispute. For this purpose, it is useful to adopt an informal guideline as to materiality. For present purposes, … an appeal must be credibly valued at 25 per cent or more of an arbitral decision to qualify as material.

In other words, an impact on rights must be established. This impact can be so severe that it alone constitutes “importance”, or it can be supplemented by a sufficiently large (around 25 per cent of the arbitral award) financial impact. Even in the latter circumstance, however, the Court may also consider whether the parties’ size and financial capacity renders the appeal unimportant to the parties in the grand scheme of things.

In this case, the Court found that the second part of the materiality test was fulfilled. The proposed appeal concerned roughly 63 per cent of the total arbitral award, rendering the value of the appeal material to the dispute. Further, the court rejected the suggestion that because Quanta was part of a large multinational conglomerate with assets of more than $15 billion, the amount at issue was unimportant to Quanta’s overall business, noting the importance of separating the specific corporate entity of Quanta from its larger group (who were not parties to the dispute).

The Court also noted the important precedential value of the dispute. The proposed appeal concerned the interpretation of a widely used standard form construction industry agreement, and the Court found precedential value in settling the meaning of the disputed terms. That made the proposed appeal of importance to the parties and the broader construction industry, satisfying the first part of the materiality test.

Nevertheless, the Court rejected permission to appeal, finding that the grounds of appeal raised by Quanta were quintessential questions of mixed fact and law and were not extricable questions of law. As such, even importance to the parties would not allow the Court to hear the appeal.

Analysis

The decision provides a thorough analysis of the circumstances where interpreting a standard form contract might be a question of mixed fact and law, rather than the default position of a pure question of law. However, the court found the appeal turned on the arbitrator’s fact finding and application of the facts and not what the terms of the subcontract meant.

However, more importantly, the Court sought to set out a principled framework for assessing “importance” for the purposes of considering leave to appeal on questions of law. It will be interesting to see if this principled framework is adopted or further developed by courts in Alberta, as well as in other provinces that have a similar requirement for importance in granting leave to appeal.

The decision also emphasizes the importance of addressing a party’s appeal rights during the drafting of an arbitration agreement. If a party wants extended rights of appeal, then the contract should safeguard against the limits imposed by section 44 of the Act (and similar legislation in other provinces) by expressly providing for appeals on questions of mixed law and fact (or even on questions of fact).

Had the subcontract in Quanta’s case expressly permitted such appeals, the outcome would have been different. Indeed, leave is not required where parties contract for an appeal on questions of mixed fact and law (or decide they want an appeal on questions of law of right).