Farm Credit Canada v. National Bank of Canada, 2011 SKQB 321

• Judge: Foley, J.
• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Case Date: September 01, 2011
• Jurisdiction: Saskatchewan
• Citations: 2011 SKQB 321;(2011), 382 Sask.R. 162 (QB)

Farm Credit Can. v. Nat. Bk. (2011), 382 Sask.R. 162 (QB)

MLB headnote and full text

Temp. Cite: [2011] Sask.R. TBEd. SE.043

Farm Credit Canada (appellant) v. National Bank of Canada (respondent)

(2010 Q.B.G. No. 1887; 2011 SKQB 321)

Indexed As: Farm Credit Canada v. National Bank of Canada

Saskatchewan Court of Queen's Bench

Judicial Centre of Saskatoon

Foley, J.

September 1, 2011.

Summary:

Farm Credit Canada (FCC) and National Bank of Canada were creditors of a company (and its related companies) in receivership. FCC and the Bank entered into an Inter-Lender Agreement (ILA), which assigned priorities between themselves respecting the various asset classes being liquidated. The related companies either received or would receive substantial monies from two federal assistance programs. One program was applied to prior to the ILA being completed. The other assistance program post-dated the ILA. FCC and the Bank, based on their differing interpretations of the ILA, each claimed entitlement to the monies under the ILA. Pursuant to the ILA, the matter proceeded to arbitration. The arbitrator's interpretation of the ILA gave priority to the monies from both assistance programs to the Bank. FCC appealed the decision under s. 45(1) of the Arbitration Act or, alternatively, sought leave to appeal on a question of law under s. 45(2), if leave was required.

The Saskatchewan Court of Queen's Bench held that leave to appeal on a question of law was required under s. 45(2). The court granted leave to appeal on one of the two issues raised on the appeal. The court held that the arbitrator achieved the correct result, but committed an error of law in the manner in which he reached that result. The court declined to set aside the arbitrator's award, but remitted the matter to reconsider implementation of the decision, hear submissions and remit a revised award.

Arbitration - Topic 8301.1

Judicial review (incl. appeals) - Grounds - General - Questions of law - Farm Credit Canada (FCC) and National Bank of Canada were creditors of a company (and its related companies) in receivership - FCC and the Bank entered into an Inter-Lender Agreement (ILA), which assigned priorities between themselves respecting the various asset classes being liquidated - The related companies either received or would receive substantial monies from two federal assistance programs - FCC and the Bank, based on their differing interpretations of the ILA, each claimed entitlement to the monies under the ILA - Pursuant to the ILA, the matter proceeded to arbitration - The arbitrator's interpretation of the ILA gave priority to the monies from both assistance programs to the Bank - The arbitrator, after fully and properly setting out the modern law on the interpretation of contracts, ruled that no provision of the ILA explicitly addressed the disposition of the assistance monies - The arbitrator characterized this as a "lacuna", creating an ambiguity which required an implied term to be added to the ILA to give effect to the objectively-determined reasonable expectation of the parties garnered from extrinsic evidence - The Saskatchewan Court of Queen's Bench held that this ruling constituted a question of law for which leave to appeal was granted under s. 45(2) of the Arbitration Act - The arbitrator's implication of a term in the ILA to deal with the assistance monies, to give necessary business efficacy, was "reasonable, equitable, was consistent with the presumed intention of the parties as found by him, and that the inclusion of the term met the standard in which the officious bystander would deem it 'so obvious that it went without saying' " - Although the manner in which the term was implied constituted an error of law, the arbitrator's "finding that National had priority to the ... monies remains unimpaired." - The arbitrator effectively erred in the manner in which he achieved the correct result - See paragraphs 45 to 55.

Arbitration - Topic 8301.1

Judicial review (incl. appeals) - Grounds - General - Questions of law - Section 45(2) of the Arbitration Act provided for leave to appeal an arbitrator's decision on questions of law only - The Saskatchewan Court of Queen's Bench discussed the difficulty distinguishing between questions of law and mixed fact and law - See paragraphs 14 to 24.

Arbitration - Topic 8302

Judicial review (incl. appeals) - Grounds - General - Mixed questions of fact and law - [See second Arbitration - Topic 8301.1 ].

Arbitration - Topic 8701

Judicial review (incl. appeals) - Practice - Appeals - Leave to appeal or right to appeal - A commercial agreement's arbitration clause (art. 11) provided that the arbitrator's decision "shall be final and binding" on the parties, subject "to applicable rights of appeal (if any) under the [Arbitration] Act" - Section 45(1) of the Act provided an appeal as of right on questions of law, fact, and mixed fact and law "if the arbitration agreement so provides" - Absent such specific provision, s. 45(2) required leave to appeal and was limited to questions of law - The Saskatchewan Court of Queen's Bench held that the reference in art. 11 to "applicable rights of appeal (if any)" did not provide for an appeal as of right under s. 45(1) - Article 11 declared any award to be final and binding, prima facie excluding any right of appeal - Absent art. 11 specifically providing for an appeal as of right, "then the only statutorily-granted appeal available is the s. 45(2) appeal which is conditional upon leave being given on only a question of law. As no appeal as of right exists, whether of law, fact or mixed fact and law, [the appellant's] appellate remedy is restricted to an application for leave on questions of law as specified in s. 45(2)" - See paragraphs 8 to 10.

Arbitration - Topic 8701

Judicial review (incl. appeals) - Practice - Appeals - Leave to appeal or right to appeal - Section 45(2) of the Arbitration Act provided for leave to appeal on questions of law if "(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law at issue will significantly affect the rights of the parties" - The Saskatchewan Court of Queen's Bench discussed conflicting decisions on what constituted the requisite "importance to the parties" and "significantly affect the rights of the parties" - The court stated that "if however one examines s. 45 as a whole and pays heed to the words used by the legislation, one can readily discern a legislative intent to filter out from the appeal process those questions of law which are not just frivolous but also those which do not go to the heart of the award. Also to be filtered out are matters which whilst affecting the rights of the parties to some degree, would not in the circumstances of a particular case, make a significant difference in the result. ... In this case, I am satisfied that the determination of a question of law is such that it could result in the gain or loss for one or the other of the parties of several million dollars, which, given the nature of the arbitration as a whole is a materially relevant amount such that the question is important to each party and reasonably justifies the appeal. Concurrently, it is reasonable in the circumstances to accept that the issue of law is such that its determination has the capacity to affect in a major degree this award." - The requirements for leave to appeal were met - See paragraphs 32 to 44.

Cases Noticed:

Seneviratne v. Seneviratne (1998), 222 A.R. 65; 1998 ABQB 289, refd to. [para. 10].

Chypiska v. Aspen Homes Ltd. et al. (2010), 365 Sask.R. 160; 2010 SKQB 37, refd to. [para. 10].

Newswest Corp. v. Glendar Holdings Ltd. et al. (2001), 209 Sask.R. 56; 2001 SKQB 336, refd to. [para. 21].

Grace Residences Ltd. v. Whitewater Concrete Ltd. (2009), 269 B.C.A.C. 63; 453 W.A.C. 63; 91 B.C.L.R.(4th) 59; 2009 BCCA 144, refd to. [para. 21].

Alenco Inc. v. Niska Gas Storage US, LLC, [2009] A.R. Uned. 272; 5 Alta. L.R.(5th) 353; 2009 ABQB 192, refd to. [para. 22].

Apache Canada Ltd. v. Harmattan Gas Processing Limited Partnership et al., [2010] A.R. Uned. 334; 27 Alta. L.R.(5th) 281; 2010 ABQB 192, refd to. [para. 22].

Denison Mines Ltd. v. Ontario Hydro, [2002] O.T.C. 650; 61 O.R.(3d) 291 (Sup. Ct.), refd to. [para. 34].

McAsphalt Marine Transport Ltd. v. Liberty International Canada et al., [2005] O.T.C. 262; 15 C.P.C.(6th) 167 (Sup. Ct.), refd to. [para. 35].

Aronowicz et al. v. Aronowicz et al., [2007] O.T.C. 118; 84 O.R.(3d) 428 (Sup. Ct.), refd to. [para. 36].

Oakford v. Telemark Inc., [2001] A.J. No. 853 (Q.B.), refd to. [para. 37].

Venneman et al. v. Mountain View No. 17 (County), [2009] A.R. Uned. 661; 2009 ABQB 540, refd to. [para. 38].

Fuhr Estate v. Husky Oil Marketing Co. (2010), 496 A.R. 232; 35 Alta. L.R.(5th) 83; 2010 ABQB 495, refd to. [para. 39].

Statutes Noticed:

Arbitration Act, S.S. 1992, c. A-24.1, sect. 45(1), sect. 45(2) [para. 8].

Authors and Works Noticed:

Fridman, G.H.L., The Law of Contract in Canada (4th Ed. 1999), generally [para. 21].

Hall, Geoff R., Canadian Contractual Interpretation Law (1st Ed. 2007), pp. 130 [para. 47]; 132 [para. 48].

Herbst, Ludmila B., Commercial Arbitration in Canada (2008), para. 10-76(c) [para. 33].

Lewison, Kim, The Interpretation of Contracts (3rd Ed. 2004), para. 6.03 [para. 46].

Swan, Angela, Canadian Contract Law (2nd Ed. 2009), p. 622 [para. 53].

Counsel:

Joel A. Hesje, Q.C., for Farm Credit Canada;

Jeffrey M. Lee, for National Bank of Canada.

This appeal was heard before Foley, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Saskatoon, who delivered the following judgment on September 1, 2011.