Judge flags gap in arbitration scheme, refers application to division of B.C. Court of Appeal

By Karunjit Singh

Law360 Canada (December 4, 2023, 3:12 PM EST) -- The B.C. Court of Appeal has referred an application for leave to appeal an arbitrator’s decision to a division of the court, noting that a lacuna in domestic arbitration scheme may lead to a party’s claims not being heard on its merits.

In Bollhorn v. Lakehouse Custom Homes Ltd., [2023] B.C.J. No. 2301, released on Nov. 30, Justice Mary Saunders noted that restrictions in the involvement of courts in arbitrations in B.C. may lead to the appellant’s contractual claim to not be heard if an arbitrator incorrectly found them to be res judicata.

“The circumstances show that in the event Mr. Bollhorn (appellant) is correct that the application of res judicata was an error of law, and Lakehouse (respondent) is correct that the decision cannot be appealed, Mr. Bollhorn’s claim under his contract will not have been heard on its merits, contrary to the expectation implicit in the contract’s arbitration clause,” the judge wrote.

In February 2021, the appellant, Robert Tyler Bollhorn, had entered into a contract for construction and purchase of a residence with the respondent, Lakehouse Custom Homes Ltd. The contract included specifications for construction and also provided for a walk-through inspection of the property no later than seven days before completion of the sale, followed by the preparation of a deficiency list.

During the construction phase, several orders were issued directing changes to the contract’s specifications. However, the parties did not agree on the markup payable to respondent for the changes.

In early 2022, when the construction was nearing conclusion, Lakehouse took the position that it was not required to complete the sale. The appellant commenced an action for specific performance.

In Bollhorn v. Lakehouse Custom Homes Ltd., [2022] B.C.J. No. 2351, released on Dec. 5, 2022, the Supreme Court of B.C. granted a declaration for specific performance of the contract and held that the total purchase price would include a six per cent markup and taxes on all change orders.

The appellant had also raised issues about downgrades in the construction of the property, but the judge had held that he had adduced insufficient evidence of the details of any downgrades.

Prior to the completion date, the appellant exercised his right to a walk-through and identified certain deficiencies. When the deficiencies were not rectified to his satisfaction, the appellant filed a notice to arbitrate seeking a determination of the identified deficiencies, quantification of the cost to him of remedying such deficiencies and orders concerning payment.

The notice was filed with the Vancouver International Arbitration Centre. An arbitrator held that all the claims put forward by the appellant in his notice of civil claim included a claim for damages against the respondent for failing to complete the construction of the home in accordance with the contract.

He held that the arbitration was barred by the doctrine of res judicata, and dismissed the arbitration proceeding.

Bollhorn filed an application seeking leave to appeal the dismissal of his notice to arbitrate, arguing that the arbitrator erred in law in finding that the issues submitted to arbitration were res judicata.

The respondent contested the leave application on its merits, and argued that British Columbia’s domestic arbitration scheme removes all court jurisdiction in respect of any appeal of the arbitrator’s decision.

Justice Saunders observed that there was “considerable force” to the appellant’s assertion of an error of law in the application of res judicata as the deficiency walk‑through was done well after the court hearing of the claim for specific performance and as the contract had assigned disputes about deficiencies exclusively to arbitration.

The judge further noted that court pleadings in the appellant’s action for specific performance did not appear to advance a claim for deficiencies, and that the court had addressed only the issues of the title of the property, and the markup and taxes payable to the respondent on the change orders.

Justice Saunders did, however, also note that there was considerable force to the respondent’s assertion that the arbitration scheme does not allow for an appeal.

The judge noted that the Arbitration Act restricted involvement of courts in arbitration proceedings conducted in British Columbia.

Under s. 59 of the Act, there is no appeal to a court from an arbitral award unless the parties to the arbitration consent or justice of the court grants leave to appeal.

The provision further notes that there is no appeal from an arbitral award if the arbitration agreement expressly states that the parties to the agreement may not appeal any question of law arising out of such an award.

The judge also observed that the domestic rules promulgated by the arbitration centre which apply to expedited proceedings for claims that do not exceed $250,000, did not permit an appeal on a question of law from an award issued under the procedure unless consented by both parties.

The appellant submitted that Part D of the centre’s rules provided for an appeal on a question of law arising out of an award where the arbitration agreement expressly provides for such an appeal, or by agreement of the parties. The judge noted that there was no such agreement between the parties in the case at bar. 

The appellant also contested the characterization of the arbitrator’s decision as an award.

“The parties, through their submissions, have revealed a lacuna in this domestic arbitration scheme, and it is a gap that may confound the general understanding of ‘where there is a right, there is a remedy’,” Justice Saunders wrote, adding that depending on whether the decision is an “award”, no other forum may be available to the appellant because the contract assigned the dispute exclusively to arbitration.

The judge determined that it was appropriate to refer the application to a division of the court, noting issues including the application of the centre’s rules, the significance of the outcome to the practice of dispute resolution and the right of parties to a hearing on the merits of a claim.

Counsel for the parties were not immediately available for comment.

Counsel for the appellant was Katrin Iacono of Barker & Company.

Counsel for the respondent was Mark Danielson of Pushor Mitchell LLP.

If you have any information, story ideas, or news tips for Law360 Canada on business-related law and litigation, including class actions, please contact Karunjit Singh at karunjit.singh@lexisnexis.ca or 905-415-5859.