A debt or not a debt? What is an arbitration award?

Comment on British Columbia (Forests) v. Teal Cedar Products Ltd., 2013 SCC 51

by Mark Hines – Heenan Blaikie

Fellow arbitration nerds may have noticed one aspect of the Supreme Court’s recent decision in British Columbia (Forests) v. Teal Cedar Products Ltd. that is a little confusing, to say the least.  The issue is whether an arbitral award is simply a debt, to be enforced by court action, or something more akin to a judgment, which is enforceable on its own terms.

The case concerned an arbitrator’s ability to award compound interest under the B.C. Commercial Arbitration Act (“CAA”).  Teal Cedar Products (“Teal”) initiated arbitral proceedings against the Province under the Forest Act claiming compensation for partial expropriation of its allowable annual harvest of trees.  The arbitrator awarded Teal $6.3 million in damages and $2.2 million in interest, compounded annually.  The Province appealed the award of interest, which was ultimately overturned by a unanimous Supreme Court.

Simply put, the Court’s reasoning concerning the issue of interest was that s. 1 of B.C.’s Court Order Interest Act (“Interest Act”) allows a court to award simple interest only; and although the CAA doesn’t define an arbitrator as a “court,” for all intents and purposes arbitral and court proceedings are the same.

However, hidden in the details of this reasoning is something quite confusing.  Section 1 of the Interest Act contemplates interest calculated from the “the date on which the cause of action arose to the date of the order.”  At the Supreme Court, Teal argued that s. 1 did not apply because the “cause of action” was the arbitration award—not the underlying expropriation.  In other words, the arbitration award was simply a debt to be enforced by a subsequent action.  In rejecting this submission, the Court held the following:

There are two problems with this approach. First, it relies on an unnatural and strained interpretation of the phrase “cause of action” in the context of arbitration under the CAA. An arbitration award is the result of a resolution of the cause of action and there is nothing to suggest that it gives rise to a new cause of action itself. (paragraph 26).

Now cast your minds back to 2010 and Russian gangsters interrupting arbitral proceedings with Kalashnikovs.  In Yugraneft v. Rexx Management Corp., 2010 SCC 19, the Supreme Court was asked to determine whether the enforcement of an arbitral award was barred by a two-year limited period.  A central issue was whether an arbitral award can be treated like a judgment (in which case a 10-year limitation period applied), or simply a debt (in which case a two-year limitation period applied).  In that case, the Court held that “an arbitral award is not a judgment or a court order”:

…An arbitral award is not a judgment or a court order, and Yugraneft’s application falls outside the scope of s. 11.  In Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), 2007 SCC 34, [2007] 2 S.C.R. 801, Deschamps J., writing for the majority, noted that “[a]rbitration is part of no state’s judicial system” and “owes its existence to the will of the parties alone” (para. 51).  See also Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), 2003 SCC 17, [2003] 1 S.C.R. 178, in which LeBel J., for the Court, wrote, “[i]n general, arbitration is not part of the state’s judicial system, although the state sometimes assigns powers or functions directly to arbitrators” (para. 41).

Unlike a local judgment, an arbitral award is not directly enforceable. In Alberta, it must first be recognized by the Court of Queen’s Bench (ICAA, s. 3), and this recognition can be resisted by the arbitral debtor on the grounds set out in art. V of the Convention…

In other words, an arbitral award is a debt!  So, which is it?  As both these decisions show, the judgment-debt distinction can have a significant impact on the enforcement of an award.  Indeed, if Yugraneft had been followed in this case the result would arguably have been the opposite.  This unexplained discrepancy—Yugraneft was not expressly overturned—leaves the law unclear and lower courts are now left to guess which precedent should apply.

However, the more troubling aspect of this discrepancy is that it might suggest result-oriented reasoning.  In both cases, there were compelling reasons for the ultimate result.  But even in a common law system, the law shouldn’t be quite so malleable.  As they say, “omne trium perfectum!” (Three times is a pattern.)  So we’ll just have to wait and see which way the next one goes.