Dancing the Two-Step to Appeal an Arbitration Award in Alberta

July 26, 2024

Written By David J. Wahl, Ciara J. Mackey, Alison FitzGerald and Tao Browne

In its recent decision in Quanta Canada Holdings II ULC v Bremar Construction Ltd, 2024 ABKB 317, the Alberta Court of King's Bench (the Court) established a principled framework for considering an application for permission to appeal an arbitral award under sections 44(2) and 44(2.1) of the Arbitration Act. In Alberta, if the governing arbitration agreement does not provide a broader right of appeal, permission to appeal under section 44 is limited to questions of law where the importance to the parties of the matters at stake in the arbitration justifies an appeal and the determination of the question of law at issue will significantly affect the parties' rights.

The Court canvassed inconsistent caselaw interpreting these requirements and the scope of available appeals of an arbitral award, largely hinging on a particular judge's sense of what is important to the parties. To promote certainty, the Court set out a more principled two-step framework focused on materiality.

The Court's decision provides a helpful and objective guide for appellants wishing to appeal arbitral awards under section 44(2) of the Act, as well as to respondents looking to uphold an arbitral decision without resort to appeal.

Background

Quanta Canada Holdings II ULC (Quanta) entered into a prime contract with ENMAX for the design, materials, construction and installation of a 1.5 kilometre underground duct bank and manhole system beneath the streets of downtown Calgary. The duct bank and manhole system was to be made up of concrete encased pipes or conduits containing electrical transmission cables.

Quanta subsequently entered into a subcontract with Bremar Construction Ltd (Bremar) using the Canadian Construction Association (CCA) 1-2008 Stipulated Price Subcontract for the installation of the duct bank. Quanta and Bremar agreed to submit all disputes arising from the subcontract to arbitration pursuant to the CCDC 40 Rules. The subcontract did not provide for the appeal of arbitral awards.

Quanta required Bremar to remove and replace the sections of duct bank and held back a significant portion of the subcontract price, so Bremar commenced an arbitration against Quanta seeking the cost of performing the work and the holdback. Bremar claimed that, among other things, Quanta had caused delays and failed to perform its work properly, which caused the defects in sections of the duct bank. Quanta defended, asserting that Bremar was the cause of delays and failed to perform its work diligently.

The arbitrator ultimately found against Quanta and awarded Bremar C$8,137,116 plus 80 percent of its reasonable legal fees, plus disbursements and arbitration expenses.

Seeking Permission to Appeal

Quanta applied for permission to appeal the arbitral award under section 44 of the Alberta Arbitration Act. The Court noted that section 44 limits appeals of arbitral awards to questions of law unless the parties agree to a broader right of appeal. The relevant portions of section 44 provide:

1. If the arbitration agreement so provides, a party may appeal an award to the court on a question of law, on a question of fact or on a question of mixed law and fact.

2. If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a party may, with the permission of the court, appeal an award to the court on a question of law.

2.1. The court shall grant the permission referred to in subsection (2) only if it is satisfied that:

(a) The importance to the parties of the matters at stake in the arbitration justifies an appeal, and

(b) The determination of the question of law at issue will significantly affect the parties.

3. Notwithstanding subsections (1) and (2), a party may not appeal an award to the court on a question of law that the parties expressly referred to the arbitral tribunal for decision.

Because the subcontract did not provide for an appeal on a question of law, fact or mixed law and fact, permission to appeal could be granted only if the appeal (a) concerned a question of law and (b) satisfied the two-part test set out in section 44(2.1).

The Court noted that the section 44(2.1)(a) requirement has not been interpreted consistently. Candidly, the Court acknowledged that previous decisions have lacked a principled framework and have instead hinged on the particular judge's own "idiosyncratic senses" of what is important to the parties.

The Court held that section 44(2.1) is a materiality test, meaning that to justify an appeal being heard by the court, it must have a significant effect on the parties' rights in a way that is important to the parties. To promote certainty, the Court established a two-step principled approach for the application of section 44(2.1)(a):

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. Public in this sense includes a sub-set of the public such as participants in 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, in my view, an appeal must be credibly valued at 25 percent or more of an arbitral decision to qualify as material. If the appellant establishes that the value of the appeal is material to the dispute, the Court may consider evidence of the size and financial capacity of the parties to determine whether the appeal is nevertheless unimportant to the parties.

Since the proposed appeal in Quantas concerned C$5,121,518 (63 percent of the total C$8,137,116 arbitral award), the Court held that the value of the appeal was material to the dispute, and therefore important to the parties. Further, when considering whether the size and financial capacity of the parties renders the appeal unimportant, courts must respect the separate corporate personality principle and focus only on the parties to the dispute. As a result, the fact that Quanta was part of an international corporate group with a parent company with over C$15-billion in assets was irrelevant to whether the dispute was unimportant to Quanta.

In this case, the proposed appeal concerned the interpretation of a widely used standard form construction contract. Because the parties were involved in the construction industry, the Court held that both parties had an interest in settling its meaning. Accordingly, the Court found that there was precedential value and that the proposed appeal was important to the parties and the broader construction industry.

After concluding that section 44(2.1) was satisfied, the Court proceeded to determine whether the grounds of appeal were questions of law that could be appealed under section 44(2). The Court concluded that even though the subcontract was a standard form contract, the dispute was not about the interpretation of the standard subcontract terms, but about the arbitrator's fact finding and application of the subcontract terms to the facts of the case. The Court found that these grounds of appeal were questions of mixed fact and law, which could not be appealed, and dismissed the application for permission to appeal.

Conclusion

The Court's decision in Quanta provides a helpful framework to govern the application of section 44(2.1)(a) and the availability of appeals of arbitral awards. The decision also carries important implications for solicitors. In particular, it is more important than ever to discuss appeal rights from the start and expressly address the issue when drafting arbitration agreements. If the arbitration agreement does not include a clause permitting the appeal of an arbitral award, parties to the agreement will be limited to appeals on questions of law even if the materiality test set out in section 44 is satisfied. Parties can expect courts to continue to be cautious in identifying questions of law, consistent with the principles laid down by the Supreme Court of Canada in Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53.

In the context of potential appeals, parties also need to be mindful in selecting the legal seat of arbitration. Quanta is currently the law in Alberta, but rules governing appeals from domestic arbitral awards are different in other provinces across Canada. That said and as noted by the Court in Quanta, similar "importance to the parties" language is also found in appeal provisions of arbitration statutes of other provinces. Ontario courts, for example, have yet to develop criteria similar to that set down in Quanta to guide the application of the “importance to the parties” limb of the permission (leave) to appeal test in section 45 of the Arbitration Act, 1991, SO 1991, c 17, having been satisfied to date where parties agree or do not contest that a matter is important to them and where some evidence is adduced of the financial significance of the dispute.

Expert legal advice is critical when drafting dispute resolution clauses for commercial agreements. To discuss your specific needs and answer any questions you may have, please contact either the Bennett Jones International Arbitration or Construction groups.

Authors