719491 Alberta Inc. Applicant/Cross-Respondent - v. -, 2021 ABQB 226

Court of Queen’s Bench of Alberta Citation: 719491 Alberta Inc v The Canada Life Assurance Company, 2021 ABQB 226 Date: 20210329 Docket: 2001 07401 Registry: Calgary Between: 719491 Alberta Inc. Applicant/Cross-Respondent - and - The Canada Life Assurance Company Respondent/Cross-Applicant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice W.P.

Sullivan _______________________________________________________ Introduction [ 1 ] Approximately half a century ago, it was not uncommon for insurance companies in Canada to venture beyond their then- existing mortgage financing business into real estate financing and investment opportunities. The Canada Life Assurance Company (“ Canada Life ”) was one such insurance company. [ 2 ] Under this regime, an insurance company acquired developable lands from a developer and leased them back to the

developer for a lengthy term. The developer then mortgaged its leasehold interest with the same insurance company, who, in exchange, provided the requisite financing for the developer’s real estate plans. Once the property was developed, the insurance company and the developer shared the income generated therefrom until the conclusion of the lease, at which point, the ownership vested free and clear with the insurance company. [ 3 ] Fast forward to the present day, Canada Life finds itself in significant disagreement with 719491 Alberta Inc. (“ 719 ”) over a 1968 lease, executed under the abovementioned regime.

After months of fruitless efforts to negotiate, the parties appeared before an arbitrator, hoping to settle the issue once and for all. [ 4 ] Regrettably, the arbitrator’s decision did not end the dispute, as 719 now seeks to set aside the arbitral award and remit the case to a new arbitrator under section 45(1) (

c) of the Arbitration Act , RSA 2000, c A-43 . In the alternative, 719 seeks an Order granting leave to appeal the arbitrator’s decision, pursuant to section 44(2) of the Arbitration Act . Canada Life, rather unsurprisingly, takes a diametrically opposing stance. In its cross-application, Canada Life urges this Court to enforce the arbitral award, costs related to the arbitration, and payment of rent arrears. [ 5 ] For the following reasons, 719’s application is dismissed, and Canada Life’s cross-application is granted.

Background [ 6 ] London House Properties Limited (“ London House ”) owned lands municipally described as 505-4 th Avenue S.W. in Calgary, Alberta (the “ Lands ”). In order to finance the construction of a multi-unit residential apartment building on the Lands, London House transferred to Canada Life its freehold title to the Lands. London House subsequently entered into an agreement with Canada Life on April 29, 1968 (the “ Lease ”), under which London House leased the Lands from Canada Life for a 99-year term. In return, London House obtained a mortgage from Canada Life in the amount of $3,300,000.

The construction on the Lands began shortly thereafter and was completed in around 1970. [ 7 ] In December 1996, 719 was incorporated, and it entered into an agreement with London House to acquire the leasehold interest in the Lands. In May 1997, Canada Life consented to the assignment. [ 8 ] Importantly,

section 4.02 of the Lease provides that the basic annual rent is to be reset at fixed intervals. Each relevant term is governed as follows: (

a) For the first 30 years of the Term, being July 1, 1968 to June 30, 1998, basic annual rent was set at $31,000; (

b) For the next 20 years of the Term, being July 1, 1998 to June 30, 2018, basic annual rent was calculated as the greater of $31,000 or 7 ¾% of the Land Market Value as of January 1, 1997 (“ Term 2 ”); (

c) For the next 20 years of the Term, being July 1, 2018 to June 30, 2038, basic annual rent was to be calculated as the greater of the basic annual rent paid during the preceding 20 years or 7 ¾% of the Land Market Value as of January 1, 2017 (“ Term 3 ”); and (

d) For the remaining 29 years of the Term, being July 1, 2038 to June 30, 2067, basic annual rent is to be calculated as the greater of the basic annual rent paid during the preceding 20 years or 7 ¾% of the Land Market Value as of January 1, 2037. [ 9 ]

Section 4.08(

b) of the Lease defines “Land Market Value” as follows:

(1) Land Market Value shall, for the purpose of

Section 4.02(3) and

Section 4.02(4), mean the market value of the Lands determined as of the relevant date, such determination to be based upon the assumption that the Lands are vacant lands which are free from encumbrance and immediately available for new development and may be lawfully used for: - (

a) the purpose for which they then are being used, or (

b) the purpose for which they are required to be used under the terms of this Lease, or (

c) the purpose for which they might then be lawfully used.

(2) The greatest, highest and most valuable purpose then available of the foregoing purposes and without regard to the existence of this Lease, or the Building or any other improvements then standing thereon shall be taken. ... [ 10 ] Finally, pursuant to

section 4.08(

c) of the Lease, the relevant Land Market Value is to be determined by arbitration in the event of disagreement. [ 11 ] The assignment of the Lease to 719 occurred after London House and Canada Life had agreed on the basic annual rent for Term 2. As such, no issues arose until the Term 3 rent reset, originally scheduled to take effect on July 1, 2018. Canada Life and 719 had drastically different views on the quantum of the Land Market Value in particular.

After months of impasse, Canada Life served a Notice of Arbitration, and the parties mutually agreed on an arbitrator. [ 12 ] On October 31, 2019, the parties and the arbitrator entered into an arbitration agreement, the terms of which stated that the arbitrator’s decision would be final and binding, except on questions of law, as provided by the Arbitration Act . [ 13 ] Two issues were put before the arbitrator: (1) what was the Land Market Value to be used in calculating the annual rent for Term 3? (2) did Canada Life act in bad faith in negotiating the Term 3 rent reset?

[14] After carefully canvassing the aggregate evidence and the relevant jurisprudence, the arbitrator dismissed the bad faithallegation and ultimately accepted Canada Life’s calculation of the Land Market Value, set at $20,850,000. [15] 719 challenges the arbitral award, claiming that there were numerous errors of law as well as a jurisdictional error. Issues [16] There are two primary inquiries for this Court:

(1) Should this Court grant 719 leave to appeal the arbitral award, pursuant to

section 44 of the Arbitration Act? (

a) Specifically, did the arbitrator commit an error of law, based on which 719 has the statutory right to seek leave to appeal?

(2) Should this Court set aside the arbitral award, pursuant to

section 45 of the Arbitration Act, on the basis that the arbitrator exceededhis jurisdiction by failing to abide by the stipulation in the parties’ pleadings? Analysis (

a) Leave to appeal [17] The relevant provisions within

section 44 of the Arbitration Act are reproduced below for convenience: ...

(2) If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a partymay, 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 rights of the parties. ... [18] In order to obtain leave to appeal the arbitrator’s decision, 719 must establish, on a preliminary basis, that its appeal is basedon a question of law. Generally, questions of law “are questions about what the correct legal test is”: Sattva Capital Corp v Creston MolyCorp, 2014 SCC 53 at para 49 [Sattva].

Unlike pure questions of law, questions of mixed fact and law pertain to whether the facts satisfythe legal tests, or differently put, they pertain to the application of a legal standard to a set of facts: Sattva at para 49; Canada (Directorof Investigation and Research) v Southam Inc, (SCC), [1997] 1 SCR 748 at 767. [19] If, however, in the course of the application of a legal test, an arbitrator fails to consider a requisite element, the arbitrator iseffectively altering the legal test, thereby giving rise to an error of law: Teal Cedar Products ltd v British Columbia, 2017 SCC 32 para44 [Teal Cedar]; Alberta (Workers’ Compensation Board) v Appeals Commission, 2005 ABCA 276 at paras 20-21. [20] The distinction between a question of law and a mixed question is crucial yet not always unequivocally clear.

In fact, theSupreme Court of Canada expressly cautioned that courts should be aware of litigants strategically obfuscating the line between aquestion of law and a mixed question in an attempt to gain jurisdiction in appeals from arbitration awards: Teal Cedar at para 45.

As theSupreme Court of Canada aptly summarizes, a claim “that a legal test may have been altered in the course of its application” is anextricable question of law whereas an allegation “that a legal test, which was unaltered, should have, when applied, resulted in a differentoutcome” is a mixed question: Teal Cedar at para 45. [21] Further, from a policy perspective, a narrow scope for extricable questions of law upholds the notion of finality in commercialarbitrations and is consistent with the deference afforded to factual findings of an arbitrator: Teal Cedar at para 45. [22] Courts are indeed alive to the fact that in many commercial arbitrations, two sophisticated parties have chosen for themselvesthe forum and method of dispute resolution and that courts’ intervention should be minimized to promote arbitral autonomy: Agrium Incv Babcock, 2005 ABCA 82 at paras 7-10; 1285592 Alberta Ltd v Moderno Homes Inc, 2018 ABQB 23 at paras 5-7 [Moderno Homes]. [23] To that end, appeals from private arbitration decisions are “neither required nor routine”: Alectra Utilities Corporation vSolar Power Network Inc, 2019 ONCA 254 at para 20 [Alectra].

Relatedly, the

interpretation of a private commercial contract willrarely give rise to questions of extraordinary importance and precedential value as to constitute extricable questions of law: ModernoHomes at para 7. [24] Against this backdrop, I turn to each of the four alleged errors of law. Arbitrator’s alleged failure to consider certain surrounding circumstances [25] 719 submits that the arbitrator failed to consider two critical aspects of the Lease and its surrounding circumstances.

First, byignoring the expansive legal relationship between 719 and Canada Life, the arbitrator failed to appreciate the additional value conferredon Canada Life, the substantial consideration given by 719, and the true impact of Land Market Value on 719’s return. Second, the

arbitrator dismissed Mr. George Reti’s expert evidence, which established that it was customary for basic rent reset provisions in similar agreements as the Lease to permit only relatively modest increases in basic rent. In doing so, the arbitrator purportedly failed to consider the nature, aim, and customs of the specific type of real estate financing transactions entered into by insurance companies in the 1960s, such as the Lease. [ 26 ] According to 719, the arbitrator’s failure to interpret the Lease in the context of the legal relationship between the parties as well as Mr.

Reti’s evidence constitutes an error of law. I disagree. [ 27 ] As stated by the Supreme Court of Canada, when interpreting a contract, courts “must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva at para 47 .

Surrounding circumstances or factual matrices are background facts known or background facts that reasonably ought to have been known to both parties at or before the formation of the contract: Sattva at para 58 ; Alberta Union of Provincial Employees v Alberta Health Services , 2020 ABCA 4 at paras 23-26 [ AUPE ]. [ 28 ] The scope of the objective factual matrix is, however, circumscribed by an important principle: surrounding circumstances do not include the contracting parties’ subjective intentions and cannot be used to add to, detract from, vary, or otherwise overwhelm the written words within the agreement: Sattva at paras 57 and 59 .

This approach is consistent with the parol evidence rule because it preserves and promotes the objectives of finality and certainty: Sattva at para 60 . [ 29 ] The arbitrator’s reasoning (“ Reasons ”) makes it abundantly clear that he correctly understood, articulated, and applied the legal principles with respect to surrounding circumstances or factual matrix: Reasons at para 114. In other words, while he was alive to the correct legal test, he declined to classify the expansive nature of the relationship between 719 and Canada Life and Mr.

Reti’s evidence as surrounding circumstances. [ 30 ] 719 relies on the Court of Appeal’s decision in IFP Technologies (Canada) Inc v EnCana Midstream and Marketing , 2017 ABCA 157 [ IFP Technologies ] to argue that there exists an error of law. In my view, IFP Technologies provides little assistance to 719. IFP Technologies does not stand for the general proposition that a failure to consider a component of the surrounding circumstances in a contractual

interpretation exercise gives rise to an error of law. Rather, the Court in IFP Technologies held that the surrounding circumstances of a contract must be considered even in the absence of ambiguity and that a failure to do so will lead to an error rooted in a question of law. [ 31 ] The Court in IFP Technologies goes on to state that “[d]etermining what constitute properly surrounding circumstances is a question of fact”: at para 83. The arbitrator in the present case correctly identified the relevant law in contractual

interpretation, including the legal principle emerging out of Sattva ; what 719 contends is that the same legal framework should have resulted in a different outcome, which the Supreme Court of Canada has expressly characterized as a question of mixed fact and law: Teal Cedar at para 45 . [ 32 ] In my view, the arbitrator’s alleged failure to consider the expansive legal relationship between 719 and Canada Life as well as Mr. Reti’s evidence as the relevant surrounding circumstances is not an error of law.

Arbitrator’s alleged misinterpretation of legal restrictions on alternate uses [ 33 ] 719 places a particular emphasis on the arbitrator’s alleged misinterpretation of legal restrictions pertaining to the

interpretation of Land Market Value. 719’s position is that

section 4.08(b)(1)(

c) of the Lease required the arbitrator to interpret and apply the City of Calgary’s Land Use Bylaw (the “ Bylaw ”) in determining the appropriate Land Market Value. [ 34 ] Assuming, pursuant to

section 4.08(b)(1), that the Lands were “immediately available for new development” as at Term 3, “the purpose for which [the Lands] might then be lawfully used” precluded a new apartment building, much less a higher-density building than the existing one. 719 submits that had the arbitrator properly interpreted the restrictions imposed by the Bylaw as at Term 3,

section 4.08(b)(1)(

c) would not have been the “greatest, highest and most valuable purpose.” As at Term 3, 719 argues, the land use designation of the Lands was CR20, on which the Bylaw in effect at the time imposed a maximum Floor Area Ratio of 3.0. [ 35 ] 719 submits that ignoring applicable legal restrictions on alternate uses or development of the Lands is an error of law, primarily relying on Musqueam Indian Band v Glass , 2000 SCC 52 at para 46 [ Musqueam ] and T Eaton Company Ltd v Alberta (Assessment Appeal Board) , 1995 ABCA 361 at para 4 [ T Eaton ].

Upon my review of Musqueam , T Eaton , and other relevant jurisprudence, I am not persuaded that the arbitrator’s alleged misinterpretation of the Bylaw can be properly characterized as an error of law. [ 36 ] In Musqueam , the parties were unable to agree on the meaning of “current land value” and whether the costs of servicing the lots at issue should be deducted from the value of the land. The Supreme Court of Canada opined that the

definitions of “land” and “value” were established in law, and as such, the expression “current land value” in the rent review clause referred to the fee simple or freehold value as opposed to leasehold value.

The Court concluded that proceeding under the assumption that “current land value” equated to leasehold value, therefore, was an error of law: Musqueam at para 52 . [ 37 ] Similarly, in T Eaton , the Court held that the Assessment Appeal Board failed to apply a market value standard, as required by what was then called the Municipal Taxation Act , RSA 1980 c M-31 ; instead, it simply looked at the special value of the property to the appellant company.

The Assessment Appeal Board’s failure to apply the correct legal framework was a fundamental and significant error of law: T Eaton at para 27 . [ 38 ] While Musqueam and T Eaton reiterate that all applicable statutes and laws relating to use must be considered when assessing land value, neither directly supports 719’s argument regarding questions of law. Errors of law in Musqueam and T Eaton arose out of the application of incorrect legal frameworks. [ 39 ] In any event, on my reading of the arbitrator’s decision, the arbitrator did not reject 719’s position because he misconstrued

the legal restrictions imposed by the Bylaw. To the contrary, the arbitrator’s decision stemmed from his

interpretation of the phrase “immediately available for new development.” He found that in the context of the surrounding circumstances of the Lease, “immediately” included instances where the potential development might require regulatory approval. [ 40 ] In the present case, I am not satisfied that the arbitrator has applied an incorrect legal test or failed to consider a requisite element of the correct legal test. 719 seeks to argue anew the same issue that was before the arbitrator: namely, that an entirely different result should have been borne out of the application of the same contractual

interpretation principles. This is a question of mixed fact and law. Indeed, considering “the close relationship between the selection and application of principles of contractual

interpretation and the construction ultimately given to the instrument,” instances wherein “a question of law can be extricated from the

interpretation process will be rare”: Sattva at para 55 . Arbitrator’s alleged failure to consider the 1998 rent reset [ 41 ] According to 719, the unique circumstances of the present case required the arbitrator to consider the 1998 rent reset as part of the surrounding circumstances in interpreting the Lease.

In particular, 719 submits that the 1998 rent reset is an indication of the magnitude by which Land Market Value is lower than the fair market value of the Lands, precisely due to the restrictions and assumptions imposed by the Lease. [ 42 ] Alternatively, 719 claims that the 1998 rent reset speaks to the subsequent conduct of the parties, which the arbitrator should have used to address any ambiguity. 719 argues that Land Market Value is susceptible to more than one reasonable

interpretation in light of the relevant factual matrix, and thus, the fact that the basic rent was never set based on the fair market value of the Lands should have informed the arbitrator’s reasoning. [ 43 ] These failures on the arbitrator’s part, 719 submits, amount to an extricable error of law. [ 44 ] 719 cites IFP Technologies for the proposition that a decision maker must consider antecedent agreements when interpreting a contract. This is an inaccurate and misleading reading of the Court of Appeal’s decision.

The Court of Appeal has, on numerous occasions, stated that evidence of prior negotiations or draft agreements is generally inadmissible but is relevant insofar as that evidence shows the factual matrix: IFP Technologies at para 85 ; AUPE at para 27 ; see also, GR Hall, Canadian Contractual

Interpretation Law , 4th ed (Markham: LexisNexis, 2020) at 428. [ 45 ] While a failure to consider an antecedent agreement does not automatically give rise to an error of law, it is well-established that a failure to consider relevant evidence is, indeed, an extricable error of law: Extreme Excavating & Backhoe Services Ltd v Scott , 2018 ABQB 102 at paras 11-12 [ Extreme Excavating ]; Alberta Permit Pro v Booth , 2009 ABCA 146 at para 38 [ Booth ]; Evans v Teamsters Local Union No 31 , 2008 SCC 20 at para 47 [ Evans ]. 719’s position is that notwithstanding the relevance of the 1998 rent reset, the arbitrator simply ignored it.

I find 719’s claim specious. [ 46 ] 719 claims that the evidence of the 1998 rent reset was before the arbitrator, which, according to 719, demonstrates the parties’ mutual understanding at the time as to the fundamental difference between Land Market Value and fair market value. The evidence to which 719 refers is a letter dated January 22, 1998 from Canada Life’s agent to 719 (the “ Letter ”), rejecting 719’s $6 million offer to buy Canada Life’s reversionary interest in the Lands on the basis that “the present appraisal value on this property” was significantly higher.

In the Letter, Canada Life’s agent notes that a more realistic price would be “north of $15 million.” [ 47 ] 719’s position is that the suggested $15 million was the fair market value of the Lands, notwithstanding which, $1,435,000 was determined as the Term 2 Land Market Value. 719 argues that the discrepancy between these two figures clearly indicates that the parties mutually understood Land Market Value to be conceptually distinct from fair market value.

I pause here to note that the Land Market Value of $1,435,000 for Term 2 was negotiated between London House and Canada Life prior to the Lease consignment; Canada Life agreed to honour that agreement when 719 succeeded as the lessee of the Lease. [ 48 ] In my view, characterizing the Letter as evidence of the 1998 rent reset and the parties’ ad idem understanding of Land Market Value is not entirely accurate. I cannot simply ignore the fact that the Land Market Value of $1,435,000 was negotiated and calculated between London House and Canada Life, not between 719 and Canada Life.

Given that there is no evidence of the particulars related to London House and Canada Life’s negotiation and calculation, drawing inferences as to Canada Life’s understanding of Land Market Value purely based on the $1,435,000 sum would require significant logical leaps and assumptions. [ 49 ] Additionally, while the Letter suggests $15 million as more realistic, it does not specify what is encompassed in that number or how it was calculated.

In advancing $15 million as a more realistic sum, Canada Life could have been referring to the value of the Lands; however, it is equally possible that Canada Life was accounting for the economic losses that it would incur through the proposed sale and purchase. In other words, the Letter does little to shed light on the fair market value of the Lands in 1998. [ 50 ] I am of the opinion that the Letter is not relevant evidence insofar as it is alleged to show the parties’ mutual understanding as to the fundamental difference between Land Market Value and fair market value.

Therefore, case authorities such as Extreme Excavating , Booth , and Evans have no application in the present case. [ 51 ] Further, it is evident that the arbitrator was alive to the fact there had been a prior rent reset. The arbitrator references the 1998 rent reset in various contexts: see, Reasons at paras 18 22, and 104. Notwithstanding his awareness of the evidence regarding the 1998 rent reset, the arbitrator chose not to discuss it in the context of surrounding circumstances when interpreting Land Market Value.

I infer that this was a deliberate choice and that the arbitrator deemed the evidence irrelevant to the

interpretation exercise. [ 52 ] To reiterate the legal proposition outlined above, determining which evidence forms surrounding circumstances in a contractual

interpretation is a question of fact: IFP Technologies at para 83 . Having determined the correct legal framework and having considered the 1998 rent reset, the arbitrator in the present case nonetheless deemed the prior rent reset irrelevant to the surrounding circumstances. Whether the 1998 rent reset should have formed part of the surrounding circumstances and whether such an alteration

should have engendered a different outcome are not questions of law. Alleged commercial absurdity [ 53 ] 719 alleges that the arbitrator interpreted the 2018 Land Market Value as simply the fair market value and that such an

interpretation defeats the purpose for which the parties at hand structured the Lease. 719 submits that the arbitrator’s

interpretation fundamentally deviates from the income sharing arrangement originally contemplated by the Lease and instead begets a commercially absurd and one-sided relationship. Relying on Trico Developments Corporation v El Condor Developments Ltd , 2020 ABCA 132 at paras 27-31 and 48 [ Trico ], 719 submits that a failure to interpret a contract in a commercially reasonable manner is an error of law. [ 54 ] However, a closer examination of Trico reveals the fatal shortcomings in 719’s argument.

In Trico , the trial judge failed to give effect to the meaning of the term “value” as it was agreed between the parties. Despite the fact that the parties had not intended to deviate from the usual meaning of “value” in their agreement, the trial judge concluded otherwise: Trico at para 41 . The fundamental objective in interpreting the terms of a contract is to determine the objective intent of the parties at the time the contract was made: IFP Technologies at para 79 .

As such, the trial judge’s failure to give the term “value” its usual and ordinary meaning, as the parties had intended, gave rise to an error of law. [ 55 ] Unlike the term “value,” the phrase Land Market Value is neither commercially nor jurisprudentially established. Even within the context of the Lease, the precise meaning of Land Market Value is not readily apparent. As such, the factual circumstances of the present case are fundamentally different from those in Trico .

There is no evidence, and indeed no argument from the parties, that the arbitrator failed to give effect to the usual and ordinary meaning of Land Market Value, contrary to the parties’ intentions. [ 56 ] While the Court in Trico opined generally that one “ought not to sanction contractual

interpretations disconnected from economic reality,” in my view, such a statement does not equate to a blanket statement that a failure to interpret a contract in a commercially reasonable manner is an error of law: Trico at para 29 . [ 57 ] Even if a failure to interpret a contract in a commercially reasonable manner amounted to an error of law, I am not persuaded that such an error occurred here. The arbitrator expressly rejected 719’s position on the meaning of Land Market Value because the evidence adduced in support of 719’s argument was found to be “commercially unrealistic”: Reasons at para 136.

In other words, the arbitrator was very much cognizant of the relevant commercial reality. [ 58 ] In light of the above, 719’s argument regarding commercial absurdity must fail. Standard of review and arguable merit [ 59 ] Given the discussion above, 719’s leave to appeal the arbitrator’s decision is denied, and to that end, I need not consider any further provisions of the Arbitration Act nor related jurisprudence. However, I note en passant two points of law that appear to be in flux. [ 60 ] First is the applicable standard of review.

Conflicting lines of authority have arisen concerning the application of Canada (Minister of Citizenship and Immigration) v Vavilov , 2019 SCC 65 [ Vavilov ] to arbitration appeals. Most recently, Brown and Rowe JJ (Côté J concurring) opined that the Supreme Court of Canada ought to elucidate the standard of review to be applied in arbitration appeals, especially considering the diverging lines of authorities emerging out of various jurisdictions.

Although the majority declined to comment on the issue, Brown and Rowe JJ unequivocally held that in light of Vavilov , “the standard of review to be applied [in arbitration appeals] is correctness”: Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District , 2021 SCC 7 at para 121 . [ 61 ] The conclusion reached by Brown and Rowe JJ is consistent with a recent decision from the Court of Appeal for the Northwest Territories, a panel comprised of three Justices of the Court of Appeal of Alberta: Northland Utilities (NWT) Limited v Hay River (Town of) , 2021 NWTCA 1 .cor 2 [ Hay River ].

In Hay River , the Court carefully canvassed the legal propositions flowing from Sattva and subsequently Vavilov and concluded at para 44 : We therefore conclude that the revised standard of review framework described in Vavilov applies to commercial arbitration decisions reviewed as a result of a right of appeal given by statute. As noted, this does not mean that all issues under appeal pursuant to the Arbitration Act are to be automatically reviewed on a standard of correctness.

As this legislation does not limit the right of appeal to questions of law, an appellate standard of review is to be applied to all issues raised, including not only questions of law reviewed for correctness, but questions of fact or of mixed fact and law which will continue to be reviewed on a standard of palpable and overriding error. [ 62 ] Considering the above, I agree that the standard of review for arbitration appeals has effectively been modified under the Vavilov regime. [ 63 ] Second point of contention is whether under the Arbitration Act , this Court must consider the arguable merit to the position that an arbitrator’s decision is incorrect.

While the Supreme Court of Canada in Sattva explained at length in which stage the “arguable merit” or “merit of an appeal” analysis should occur, it is important to note that Sattva was decided in the context of British Columbia’s arbitration legislation. Such a distinction is particularly pertinent because the British Columbia legislation endues courts with residual discretion in granting or denying leave to appeal.

The Supreme Court of Canada explains that it is precisely during this discretionary stage that courts may examine preliminarily the merits of questions of law: Sattva at para 78 . [ 64 ] Unlike the British Columbia legislation, however, the Alberta Arbitration Act does not grant such discretionary power when determining whether to grant or deny leave to appeal. Under section 44(2.1), the court shall grant leave to appeal 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 rights of the parties. As adroitly explained by Wittmann CJQB in Capital Power Corporation v Lehigh Hanson Materials Limited , 2013 ABQB 413 at paras 45-51 , the word “shall” is a clear indication that there is no residual

discretionary power under

section 44 . (

b) Setting aside the award [ 65 ] Under section 45(1)(

c) of the Arbitration Act , on a party’s application, this Court may set aside an arbitral award on the basis that “the award deals with a matter in dispute that the arbitration agreement does not cover or contains a decision on a matter in dispute that is beyond the scope of the agreement.”

Section 45 operates independently of

section 44. [ 66 ] 719 asserts that both 719 and Canada Life acknowledged in their respective Statements of Position that the Lease constituted an income sharing arrangement. Despite the alleged agreement, the arbitrator ultimately held that the Lease was merely a commercial lease document. 719 submits that the arbitrator effectively decided on a different dispute than the one that was before him and thus exceeded his jurisdiction.

As such, the award should be set aside and a new arbitration, conducted under a different arbitrator, should be ordered. [ 67 ] Based on my reading of each party’s Statement of Position, I am not persuaded that 719 and Canada Life were ad idem on whether the Lease constituted an income sharing arrangement. In its Statement of Position, 719 labels the Lease as a net revenue share arrangement, designed for the parties to share the financial benefit from the operation of the building on the Lands fairly and equitably, which recognizes the respective contribution of the parties to the development.

On the other hand, Canada Life summarizes in its Statement of Position that the Lease provided for Basic Rent as well as Gross Rental as defined in the Lease, and income sharing arrangement for any additional rent. The legal relationship of the two parties was clearly not a settled non-issue; far from it, in fact. [ 68 ] On the question of jurisdiction, I find the case authority cited by 719 to be of little assistance: Tall Ships Landing Devt Inc v City of Brockville , 2019 ONSC 6597 revolved around setting aside an arbitral award on the basis that it treated the parties unequally or unfairly.

Rather, in my view, Alectra is far more instructive in shedding light on under what circumstances an arbitral award may be set aside on the basis of jurisdictional issues. [ 69 ] The role of courts in addressing claims of jurisdictional error in the context of private arbitration is limited: Alectra at para 34 .

In order to set aside an arbitrator’s award on a jurisdictional ground, the judge must be satisfied that the award either dealt with a matter not covered by the arbitration agreement or included a decision on a matter beyond the scope of the agreement: Alectra at para 35 . [ 70 ] The mandate of an arbitrator stemming from an arbitration agreement should be given a liberal

interpretation and includes issues with a close nexus to the primary dispute between the parties. As the Supreme Court of Canada opined in Desputeaux v Éditions Chouette (1987) inc , 2003 SCC 17 at para 35 : In order to understand the scope of the arbitrator’s mandate, a purely textual analysis of the communications between the parties is not sufficient. The arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement.

The mandate also includes everything that is closely connected with that agreement, or, in other words, questions that have [TRANSLATION] “a connection with the question to be disposed of by the arbitrators with the dispute submitted to them”... [ 71 ] In the present case, considering the parties’ differing views on their legal relationship and the importance of the characterization of such a relationship in interpreting Land Market Value, I conclude that there is no jurisdictional error on which basis this Court may set aside the arbitral award.

Conclusion [ 72 ] To reiterate, I conclude that there is no error of law arising out of the arbitrator’s alleged failure to consider: (1) certain surrounding circumstances, (2) the Bylaw and the related legal restrictions, (3) the 1998 rent reset, and (3) commercial reasonableness and reality, in reaching his conclusion. [ 73 ] Further, in my view, there is no basis to set aside the arbitral award given that the determination of the legal relationship between 719 and Canada Life was within the arbitrator’s jurisdiction and was, in fact, an indispensable

part in interpreting Land Market Value. [ 74 ] In light of the above, 719’s application is dismissed and Canada Life’s cross-application is granted. In granting the remedy sought by Canada Life, I order the following: (

a) Enforcement of the arbitral award, dated May 15, 2020; (

b) Enforcement of the cost award, dated July 10, 2020; and (

c) Payment from 719 to Canada Life of the full amount of the rent arrears, plus any monthly deficiency accrued after September 1, 2020, pursuant to the Land Market Value determined in the arbitration decision, to be made forthwith. [ 75 ] Finally, Canada Life is entitled to costs of this application. If parties are unable to agree on the quantum of costs, they may make written submissions within 30 days. Heard on the 25 th and 26 th day of February, 2021. Dated at the City of Calgary, Alberta this 29 th day of March, 2021.

W.P. Sullivan J.C.Q.B.A. Appearances: Michael J. Donaldson and Alastair MacKinnon for the Applicant/Cross-Respondent Geoffrey D. Holub, Natasha Doelman and Sinziana R. Hennig for the Respondent/Cross-Applicant