Sattva Capital Corporation (formerly Sattva Capital Inc.) Appellant v. Creston Moly Corporation (formerly Georgia Ventures Inc.), 2014 SCC 53

SUPREME COURT OF CANADA Citation: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 Date: 20140801 Docket: 35026 Between: Sattva Capital Corporation (formerly Sattva Capital Inc.) Appellant and Creston Moly Corporation (formerly Georgia Ventures Inc.) Respondent - and - Attorney General of British Columbia and BCICAC Foundation Interveners Coram: McLachlin C.J. and LeBel, Abella, Rothstein, Moldaver, Karakatsanis and Wagner JJ.

Reasons for Judgment: (paras. 1 to 125) Rothstein J. (McLachlin C.J. and LeBel, Abella, Moldaver, Karakatsanis and Wagner JJ. concurring) sattva capital v. creston moly, 2014 SCC 53, [2014] 2 S.C.R. 633 Sattva Capital Corporation (formerly Sattva Capital Inc.) Appellant v. Creston Moly Corporation (formerly Georgia Ventures Inc.) Respondent and Attorney General of British Columbia and BCICAC Foundation Interveners Indexed as: Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53 File No.: 35026.

2013: December 12; 2014: August 1.

Present: McLachlin C.J. and LeBel, Abella, Rothstein, Moldaver, Karakatsanis and Wagner JJ. on appeal from the court of appeal for british columbia Arbitration — Appeals — Commercial arbitration awards — Parties entering into agreement providing for payment of finder’s fee in shares — Parties disagreeing as to date on which to price shares for payment of finder’s fee and entering into arbitration — Leave to appeal arbitral award sought pursuant to s. 31(2) of the Arbitration Act — Leave to appeal denied but granted on appeal to Court of Appeal — Appeal of award dismissed but dismissal reversed by Court of Appeal — Whether Court of Appeal erred in granting leave to appeal — What is appropriate standard of review to be applied to commercial arbitral decisions made under Arbitration Act — Arbitration Act, R.S.B.C. 1996, c. 55, s. 31(2).

Contracts —

Interpretation — Parties entering into agreement providing for payment of finder’s fee in shares — Parties disagreeing as to date on which to price the shares for payment of finder’s fee and entering into arbitration — Whether arbitrator reasonably construed contract as a whole — Whether contractual

interpretation is question of law or of mixed fact and law. S and C entered into an agreement that required C to pay S a finder’s fee in relation to the acquisition of a molybdenum mining property by C. The parties agreed that under this agreement, S was entitled to a finder’s fee of US$1.5 million and was entitled to be paid this fee in shares of C. However, they disagreed on which date should be used to price the shares and therefore the number of shares to which S was entitled.

S argued that the share price was dictated by the date set out in the Market Price definition in the agreement and therefore that it should receive approximately 11,460,000 shares priced at $0.15. C claimed that the agreement’s “maximum amount” proviso prevented S from receiving shares valued at more than US$1.5 million on the date the fee was payable, and therefore that S should receive approximately 2,454,000 shares priced at $0.70. The parties entered into arbitration pursuant to the B.C. Arbitration Act and the arbitrator found in favour of S.

C sought leave to appeal the arbitrator’s decision pursuant to s. 31(2) of the Arbitration Act , but leave was denied on the basis that the question on appeal was not a question of law. The Court of Appeal reversed the decision and granted C’s application for leave to appeal, finding that the arbitrator’s failure to address the meaning of the agreement’s “maximum amount” proviso raised a question of law. The superior court judge on appeal dismissed C’s appeal, holding that the arbitrator’s

interpretation of the agreement was correct. The Court of Appeal allowed C’s appeal, finding that the arbitrator reached an absurd result. S appeals the decisions of the Court of Appeal that granted leave and that allowed the appeal. Held : The appeal should be allowed and the arbitrator’s award reinstated. Appeals from commercial arbitration decisions are narrowly circumscribed under the Arbitration Act . Under s. 31(1), they are limited to questions of law, and leave to appeal is required if the parties do not consent to the appeal. Section 31(2)(

a) sets out the requirements for leave at issue in the present case: the court may grant leave if it determines that the result is important to the parties and the determination of the point of law may prevent a miscarriage of justice. In the case at bar, the Court of Appeal erred in finding that the construction of the finder’s fee agreement constituted a question of law. Such an exercise raises a question of mixed fact and law, and therefore, the Court of Appeal erred in granting leave to appeal. The historical approach according to which determining the legal rights and obligations of the parties under a written contract was considered a question of law should be abandoned. Contractual

interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual

interpretation are applied to the words of the written contract, considered in light of the factual matrix of the contract. It may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law; however, the close relationship between the selection and application of principles of contractual

interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the

interpretation process will be rare. The goal of contractual

interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. Accordingly, courts should be cautious in identifying extricable questions of law in disputes over contractual

interpretation. Legal errors made in the course of contractual

interpretation include the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor. Concluding that C’s application for leave to appeal raised no question of law is sufficient to dispose of this appeal; however, the Court found it salutary to continue with its analysis. In order to rise to the level of a miscarriage of justice for the purposes of s. 31(2) (a), an alleged legal error must pertain to a material issue in the dispute which, if decided differently, would affect the result of the case.

According to this standard, a determination of a point of law “may prevent a miscarriage of justice” only where the appeal itself has some possibility of succeeding. An appeal with no chance of success will not meet the threshold of “may prevent a miscarriage of justice” because there would be no chance that the outcome of the appeal would cause a change in the final result of the case. At the leave stage, it is not appropriate to consider the full merits of a case and make a final determination regarding whether an error of law was made.

However, some preliminary consideration of the question of law by the leave court is necessary to determine whether the appeal has the potential to succeed and thus to change the result in the case. The appropriate threshold for assessing the legal question at issue under s. 31(2) is whether it has arguable merit, meaning that the issue raised by the applicant cannot be dismissed through a preliminary examination of the question of law.

Assessing whether the issue raised by an application for leave to appeal has arguable merit must be done in light of the standard of review on which the merits of the appeal will be judged. This requires a preliminary assessment of the standard of review. The leave court’s assessment of the standard of review is only preliminary and does not bind the court which considers the merits of the appeal. The words “may grant leave” in s. 31(2) of the Arbitration Act confer on the court residual discretion to deny leave even

where the requirements of s. 31(2) are met. Discretionary factors to consider in a leave application under s. 31(2)(

a) include: conduct ofthe parties, existence of alternative remedies, undue delay and the urgent need for a final answer. These considerations could be a soundbasis for declining leave to appeal an arbitral award even where the statutory criteria have been met. However, courts should exercisesuch discretion with caution. Appellate review of commercial arbitration awards is different from judicial review of a decision of a statutory tribunal, thusthe standard of review framework developed for judicial review in Dunsmuir v.

New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, andthe cases that followed it, is not entirely applicable to the commercial arbitration context. Nevertheless, judicial review of administrativetribunal decisions and appeals of arbitration awards are analogous in some respects. As a result, aspects of the Dunsmuir framework arehelpful in determining the appropriate standard of review to apply in the case of commercial arbitration awards.

In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will bereasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of lawof central importance to the legal system as a whole and outside the adjudicator’s expertise. The question at issue here does not fall intoone of those categories and thus the standard of review in this case is reasonableness.

In the present case, the arbitrator reasonably construed the contract as a whole in determining that S is entitled to be paid itsfinder’s fee in shares priced at $0.15. The arbitrator’s decision that the shares should be priced according to the Market Price definitiongives effect to both that definition and the “maximum amount” proviso and reconciles them in a manner that cannot be said to beunreasonable. The arbitrator’s reasoning meets the reasonableness threshold of justifiability, transparency and intelligibility. A court considering whether leave should be granted is not adjudicating the merits of the case.

It decides only whether thematter warrants granting leave, not whether the appeal will be successful, even where the determination of whether to grant leaveinvolves a preliminary consideration of the question of law at issue. For this reason, comments by a leave court regarding the meritscannot bind or limit the powers of the court hearing the actual appeal. Cases Cited Referred to: British Columbia Institute of Technology (Student Assn.) v. British Columbia Institute of Technology, 2000BCCA 496, 192 D.L.R. (4th) 122; King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man.

R. (2d)63; Thorner v. Major, [2009] UKHL 18, [2009] 3 All E.R. 945; Prenn v. Simmonds, [1971] 3 All E.R. 237; Reardon Smith Line Ltd. v.Hansen-Tangen, [1976] 3 All E.R. 570; Jiro Enterprises Ltd. v. Spencer, 2008 ABCA 87 ; QK Investments Inc. v. CrocusInvestment Fund, 2008 MBCA 21, 290 D.L.R. (4th) 84; Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd., 2010 ABCA 126,25 Alta. L.R. (5th) 221; Minister of National Revenue v. Costco Wholesale Canada Ltd., 2012 FCA 160, 431 N.R. 78; WCI WasteConversion Inc. v. ADI International Inc., 2011 PECA 14, 309 Nfld. & P.E.I.R. 1; 269893 Alberta Ltd. v.

Otter Bay Developments Ltd.,2009 BCCA 37, 266 B.C.A.C. 98; Hayes Forest Services Ltd. v. Weyerhaeuser Co., 2008 BCCA 31, 289 D.L.R. (4th) 230; Bell Canadav. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81; Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R. 748; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Jesuit Fathers of Upper Canada v. GuardianInsurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744; Tercon Contractors Ltd. v. British Columbia (Transportation andHighways), 2010 SCC 4, [2010] 1 S.C.R. 69; Moore Realty Inc. v.

Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300;Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98; Glaswegian Enterprises Inc. v. B.C. TelMobility Cellular Inc. (1997), (BC CA), 101 B.C.A.C. 62; Eli Lilly & Co. v. Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129; United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., (SCC), [1993] 2 S.C.R. 316; Gutierrez v. Tropic International Ltd. (2002), (ON CA), 63 O.R. (3d) 63;Domtar Inc. v. Belkin Inc. (1989), (BC CA), 39 B.C.L.R. (2d) 257; Quan v.

Cusson, 2009 SCC 62, [2009] 3 S.C.R.712; Quick Auto Lease Inc. v. Nordin, 2014 MBCA 32, 303 Man. R. (2d) 262; R. v. Fedossenko, 2013 ABCA 164 ; Enns v.Hansey, 2013 MBCA 23 ; R. v. Hubley, 2009 PECA 21, 289 Nfld. & P.E.I.R. 174; R. v. Will, 2013 SKCA 4, 405 Sask. R. 270;Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708;Immeubles Port Louis Ltée v. Lafontaine (Village), (SCC), [1991] 1 S.C.R. 326; MiningWatch Canada v. Canada(Fisheries and Oceans), 2010 SCC 2, [2010] 1 S.C.R. 6; R. v. Bellusci, 2012 SCC 44, [2012] 2 S.C.R. 509; R. v.

Bjelland, 2009 SCC 38,[2009] 2 S.C.R. 651; R. v. Regan, 2002 SCC 12, [2002] 1 S.C.R. 297; Homex Realty and Development Co. v. Corporation of the Villageof Wyoming, (SCC), [1980] 2 S.C.R. 1011; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta(Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Canadian Western Bankv. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Pacifica Mortgage Investment Corp. v. Laus Holdings Ltd., 2013 BCCA 95, 333 B.C.A.C.310, leave to appeal refused, [2013] 3 S.C.R. viii; Tamil Co-operative Homes Inc. v.

Arulappah (2000), (ON CA), 49O.R. (3d) 566. Statutes and Regulations Cited Administrative Tribunals Act, S.B.C. 2004, c. 45, ss. 58, 59. Arbitration Act, R.S.B.C. 1996, c. 55 [formerly Commercial Arbitration Act], s. 31. Civil Code of Québec. Authors Cited Brown, Donald J. M., and John M. Evans, with the assistance of Christine E. Deacon. Judicial Review of Administrative Action inCanada. Toronto: Canvasback, 1998 (loose-leaf updated May 2014, release 1). Dyzenhaus, David. “The Politics of Deference: Judicial Review and Democracy”, in Michael Taggart, ed., The Province ofAdministrative Law.

Oxford: Hart, 1997, 279. Hall, Geoff R. Canadian Contractual

Interpretation Law, 2nd ed. Markham, Ont.: LexisNexis, 2012.

Lewison, Kim. The

Interpretation of Contracts , 5th ed. London: Sweet & Maxwell, 2011 & Supp. 2013. McCamus, John D. The Law of Contracts , 2nd ed. Toronto: Irwin Law, 2012. APPEAL from a judgment of the British Columbia Court of Appeal (Newbury, Low and Levine JJ.A.), 2010 BCCA 239 , 7 B.C.L.R. (5th) 227, 319 D.L.R. (4th) 219, [2010] B.C.J. No. 891 (QL), 2010 CarswellBC 1210, setting aside a decision of Greyell J., 2009 BCSC 1079 , [2009] B.C.J.

No. 1597 (QL), 2009 CarswellBC 2096, and from a subsequent judgment of the British Columbia Court of Appeal (Kirkpatrick, Neilson and Bennett JJ.A.), 2012 BCCA 329 , 36 B.C.L.R. (5th) 71, 326 B.C.A.C. 114, 554 W.A.C. 114, 2 B.L.R. (5th) 1, [2012] B.C.J. No. 1631 (QL), 2012 CarswellBC 2327, setting aside a decision of Armstrong J., 2011 BCSC 597 , 84 B.L.R. (4th) 102, [2011] B.C.J. No. 861 (QL), 2011 CarswellBC 1124. Appeal allowed. Michael A. Feder and Tammy Shoranick , for the appellant. Darrell W. Roberts , Q.C. , and David Mitchell , for the respondent.

Jonathan Eades and Micah Weintraub , for the intervener the Attorney General of British Columbia. David Wotherspoon and Gavin R. Cameron , for the intervener the BCICAC Foundation. TABLE OF CONTENTS Paragraph I. Facts . 2 II. Arbitral Award . 11 III. Judicial History . 19 A. British Columbia Supreme Court — Leave to Appeal Decision, 2009 BCSC 1079 . 19 B. British Columbia Court of Appeal — Leave to Appeal Decision, 2010 BCCA 239 . 21 C. British Columbia Supreme Court — Appeal Decision, 2011 BCSC 597 . 23 D. British Columbia Court of Appeal — Appeal Decision, 2012 BCCA 329 . 28 IV. Issues . 31 V. Analysis . 32 A.

The Leave Issue Is Properly Before This Court 32 B. The CA Leave Court Erred in Granting Leave Under Section 31(2) of the AA .. 38

(1) Considerations Relevant to Granting or Denying Leave to Appeal Under the AA .. 38

(2) The Result Is Important to the Parties . 41

(3) The Question Under Appeal Is Not a Question of Law .. 42 (

a) When Is Contractual

Interpretation a Question of Law? . 42 (

b) The Role and Nature of the “Surrounding Circumstances” . 56 (

c) Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule 59 (

d) Application to the Present Case . 62

(4) May Prevent a Miscarriage of Justice . 68 (

a) Miscarriage of Justice for the Purposes of Section 31(2)(

a) of the AA .. 68 (

b) Application to the Present Case . 80

(5) Residual Discretion to Deny Leave . 85 (

a) Considerations in Exercising Residual Discretion in a Section 31(2)(

a) Leave Application 85 (

b) Application to the Present Case . 93

C. Standard of Review Under the AA.. 102 D. The Arbitrator Reasonably Construed the Agreement as a Whole. 107 E. Appeal Courts Are Not Bound by Comments on the Merits of the Appeal Made by Leave Courts. 120 VI. Conclusion. 125 APPENDIX I Relevant Provisions of the Sattva-Creston Finder’s Fee Agreement APPENDIX II

Section 3.3 of TSX Venture Exchange Policy 5.1: Loans, Bonuses, Finder’s Fees and Commissions APPENDIX III Commercial Arbitration Act, R.S.B.C. 1996, c. 55 (as it read on January 12, 2007) (now the Arbitration Act) The judgment of the Court was delivered by [1] Rothstein J. — When is contractual

interpretation to be treated as a question of mixed fact and law and when shouldit be treated as a question of law? How is the balance between reviewability and finality of commercial arbitration awards under theCommercial Arbitration Act, R.S.B.C. 1996, c. 55 (now the Arbitration Act, hereinafter the “AA”), to be determined? Can findings madeby a court granting leave to appeal with respect to the merits of an appeal bind the court that ultimately decides the appeal? These arethree of the issues that arise in this appeal. I.

Facts [2] The issues in this case arise out of the obligation of Creston Moly Corporation (formerly Georgia Ventures Inc.) topay a finder’s fee to Sattva Capital Corporation (formerly Sattva Capital Inc.). The parties agree that Sattva is entitled to a finder’s fee ofUS$1.5 million and is entitled to be paid this fee in shares of Creston, cash or a combination thereof. They disagree on which date shouldbe used to price the Creston shares and therefore the number of shares to which Sattva is entitled. [3] Mr.

Hai Van Le, a principal of Sattva, introduced Creston to the opportunity to acquire a molybdenum miningproperty in Mexico. On January 12, 2007, the parties entered into an agreement (the “Agreement”) that required Creston to pay Sattva afinder’s fee in relation to the acquisition of this property. The relevant provisions of the Agreement are set out in Appendix I. [4] On January 30, 2007, Creston entered into an agreement to purchase the property for US$30 million.

On January31, 2007, at the request of Creston, trading of Creston’s shares on the TSX Venture Exchange (“TSXV”) was halted to preventspeculation while Creston completed due diligence in relation to the purchase. On March 26, 2007, Creston announced it intended tocomplete the purchase and trading resumed the following day. [5] The Agreement provides that Sattva was to be paid a finder’s fee equal to the maximum amount that could be paidpursuant to s. 3.3 of Policy 5.1 in the TSXV Policy Manual.

Section 3.3 of Policy 5.1 is incorporated by reference into the Agreement ats. 3.1 and is set out in Appendix II of these reasons. The maximum amount pursuant to s. 3.3 of Policy 5.1 in this case is US$1.5 million. [6] According to the Agreement, by default, the fee would be paid in Creston shares. The fee would only be paid incash or a combination of shares and cash if Sattva made such an election. Sattva made no such election and was therefore entitled to bepaid the fee in shares.

The finder’s fee was to be paid no later than five working days after the closing of the transaction purchasing themolybdenum mining property. [7] The dispute between the parties concerns which date should be used to determine the price of Creston shares andthus the number of shares to which Sattva is entitled. Sattva argues that the share price is dictated by the Market Price definition at s. 2of the Agreement, i.e. the price of the shares “as calculated on close of business day before the issuance of the press release announcingthe Acquisition”.

The press release announcing the acquisition was released on March 26, 2007. Prior to the halt in trading on January31, 2007, the last closing price of Creston shares was $0.15. On this

interpretation, Sattva would receive approximately 11,460,000shares (based on the finder’s fee of US$1.5 million). [8] Creston claims that the Agreement’s “maximum amount” proviso means that Sattva cannot receive cash or sharesvalued at more than US$1.5 million on the date the fee is payable. The shares were payable no later than five days after May 17, 2007,the closing date of the transaction. At that time, the shares were priced at $0.70 per share. This valuation is based on the price aninvestment banking firm valued Creston at as part of underwriting a private placement of shares on April 17, 2007.

On thisinterpretation, Sattva would receive approximately 2,454,000 shares, some 9 million fewer shares than if the shares were priced at $0.15per share. [9] The parties entered into arbitration pursuant to the AA. The arbitrator found in favour of Sattva. Creston soughtleave to appeal the arbitrator’s decision pursuant to s. 31(2) of the AA. Leave was denied by the British Columbia Supreme Court (2009BCSC 1079 (“SC Leave Court”)).

Creston successfully appealed this decision and was granted leave to appeal the arbitrator’sdecision by the British Columbia Court of Appeal (2010 BCCA 239, 7 B.C.L.R. (5th) 227 (“CA Leave Court”)).

[ 10 ] The British Columbia Supreme Court judge who heard the merits of the appeal ( 2011 BCSC 597 , 84 B.L.R. (4th) 102 (“SC Appeal Court”)) upheld the arbitrator’s award. Creston appealed that decision to the British Columbia Court of Appeal ( 2012 BCCA 329 , 36 B.C.L.R. (5th) 71 (“CA Appeal Court”)). That court overturned the SC Appeal Court and found in favour of Creston. Sattva appeals the decisions of the CA Leave Court and CA Appeal Court to this Court. II.

Arbitral Award [ 11 ] The arbitrator, Leon Getz, Q.C., found in favour of Sattva, holding that it was entitled to receive its US$1.5 million finder’s fee in shares priced at $0.15 per share. [ 12 ] The arbitrator based his decision on the Market Price definition in the Agreement: What, then, was the “Market Price” within the meaning of the Agreement? The relevant press release is that issued on March 26 . . . .

Although there was no closing price on March 25 (the shares being on that date halted), the “last closing price” within the meaning of the definition was the $0.15 at which the [Creston] shares closed on January 30, the day before trading was halted “pending news” . . . . This conclusion requires no stretching of the words of the contractual definition; on the contrary, it falls literally within those words. [para. 22] [ 13 ] Both the Agreement and the finder’s fee had to be approved by the TSXV. Creston was responsible for securing this approval.

The arbitrator found that it was either an implied or an express term of the Agreement that Creston would use its best efforts to secure the TSXV’s approval and that Creston did not apply its best efforts to this end. [ 14 ] As previously noted, by default, the finder’s fee would be paid in shares unless Sattva made an election otherwise. The arbitrator found that Sattva never made such an election. Despite this, Creston represented to the TSXV that the finder’s fee was to be paid in cash. The TSXV conditionally approved a finder’s fee of US$1.5 million to be paid in cash.

Sattva first learned that the fee had been approved as a cash payment in early June 2007. When Sattva raised this matter with Creston, Creston responded by saying that Sattva had the choice of taking the finder’s fee in cash or in shares priced at $0.70. [ 15 ] Sattva maintained that it was entitled to have the finder’s fee paid in shares priced at $0.15. Creston asked its lawyer to contact the TSXV to clarify the minimum share price it would approve for payment of the finder’s fee.

The TSXV confirmed on June 7, 2007 over the phone and August 9, 2007 via email that the minimum share price that could be used to pay the finder’s fee was $0.70 per share. The arbitrator found that Creston “consistently misrepresented or at the very least failed to disclose fully the nature of the obligation it had undertaken to Sattva” (para. 56(k)) and “that in the absence of an election otherwise, Sattva is entitled under that Agreement to have that fee paid in shares at $0.15” (para. 56(g)).

The arbitrator found that the first time Sattva’s position was squarely put before the TSXV was in a letter from Sattva’s solicitor on October 9, 2007. [ 16 ] The arbitrator found that had Creston used its best efforts, the TSXV could have approved the payment of the finder’s fee in shares priced at $0.15 and such a decision would have been consistent with its policies. He determined that there was “a substantial probability that [TSXV] approval would have been given” (para. 81).

He assessed that probability at 85 percent. [ 17 ] The arbitrator found that Sattva could have sold its Creston shares after a four-month holding period at between $0.40 and $0.44 per share, netting proceeds of between $4,583,914 and $5,156,934. The arbitrator took the average of those two amounts, which came to $4,870,424, and then assessed damages at 85 percent of that number, which came to $4,139,860, and rounded it to $4,140,000 plus costs. [ 18 ] After this award was made, Creston made a cash payment of US$1.5 million (or the equivalent in Canadian dollars) to Sattva.

The balance of the damages awarded by the arbitrator was placed in the trust account of Sattva’s solicitors. III. Judicial History A. British Columbia Supreme Court — Leave to Appeal Decision, 2009 BCSC 1079 [ 19 ] The SC Leave Court denied leave to appeal because it found the question on appeal was not a question of law as required under s. 31 of the AA . In the judge’s view, the issue was one of mixed fact and law because the arbitrator relied on the “factual matrix” in coming to his conclusion.

Specifically, determining how the finder’s fee was to be paid involved examining “the TSX’s policies concerning the maximum amount of the finder’s fee payable, as well as the discretionary powers granted to the Exchange in determining that amount” (para. 35). [ 20 ] The judge found that even had he found a question of law was at issue he would have exercised his discretion against granting leave because of Creston’s conduct in misrepresenting the status of the finder’s fee to the TSXV and Sattva, and “on the principle that one of the objectives of the [ AA ] is to foster and preserve the integrity of the arbitration system” (para. 41).

B. British Columbia Court of Appeal — Leave to Appeal Decision, 2010 BCCA 239 [ 21 ] The CA Leave Court reversed the SC Leave Court and granted Creston’s application for leave to appeal the arbitral award. It found the SC Leave Court “err[ed] in failing to find that the arbitrator’s failure to address the meaning of s. 3.1 of the Agreement (and in particular the ‘maximum amount’ provision) raised a question of law” (para. 23).

The CA Leave Court decided that the construction of s. 3.1 of the Agreement, and in particular the “maximum amount” proviso, was a question of law because it did not involve reference to the facts of what the TSXV was told or what it decided. [ 22 ] The CA Leave Court acknowledged that Creston was “less than forthcoming in its dealings with Mr. Le and the [TSXV]” but said that “these facts are not directly relevant to the question of law it advances on the appeal” (para. 27).

With respect to the SC leave judge’s reference to the preservation of the integrity of the arbitration system, the CA Leave Court said that the parties would have known when they chose to enter arbitration under the AA that an appeal on a question of law was possible. Additionally,

while the finality of arbitration is an important factor in exercising discretion, when “a question of law arises on a matter of importance and a miscarriage of justice might be perpetrated if an appeal were not available, the integrity of the process requires, at least in the circumstances of this case, that the right of appeal granted by the legislation also be respected” (para. 29). C. British Columbia Supreme Court — Appeal Decision, 2011 BCSC 597 [ 23 ] Armstrong J. reviewed the arbitrator’s decision on a correctness standard. He dismissed the appeal, holding the arbitrator’s

interpretation of the Agreement was correct. [ 24 ] Armstrong J. found that the plain and ordinary meaning of the Agreement required that the US$1.5 million fee be paid in shares priced at $0.15. He did not find the meaning to be absurd simply because the price of the shares at the date the fee became payable had increased in relation to the price determined according to the Market Price definition.

He was of the view that changes in the price of shares over time are inevitable, and that the parties, as sophisticated business persons, would have reasonably understood a fluctuation in share price to be a reality when providing for a fee payable in shares. According to Armstrong J., it is indeed because of market fluctuations that it is necessary to choose a specific date to price the shares in advance of payment.

He found that this was done by defining “Market Price” in the Agreement, and that the fee remained US$1.5 million in $0.15 shares as determined by the Market Price definition regardless of the price of the shares at the date that the fee was payable. [ 25 ] According to Armstrong J., that the price of the shares may be more than the Market Price definition price when they became payable was foreseeable as a “natural consequence of the fee agreement” (para. 62).

He was of the view that the risk was borne by Sattva, since the price of the shares could increase, but it could also decrease such that Sattva would have received shares valued at less than the agreed upon fee of US$1.5 million. [ 26 ] Armstrong J. held that the arbitrator’s

interpretation which gave effect to both the Market Price definition and the “maximum amount” proviso should be preferred to Creston’s

interpretation of the agreement which ignored the Market Price definition. [ 27 ] In response to Creston’s argument that the arbitrator did not consider s. 3.1 of the Agreement which contains the “maximum amount” proviso, Armstrong J. noted that the arbitrator explicitly addressed the “maximum amount” proviso at para. 23 of his decision. D.

British Columbia Court of Appeal — Appeal Decision, 2012 BCCA 329 [ 28 ] The CA Appeal Court allowed Creston’s appeal, ordering that the payment of US$1.5 million that had been made by Creston to Sattva on account of the arbitrator’s award constituted payment in full of the finder’s fee. The court reviewed the arbitrator’s decision on a standard of correctness. [ 29 ] The CA Appeal Court found that both it and the SC Appeal Court were bound by the findings made by the CA Leave Court.

There were two findings that were binding: (1) it would be anomalous if the Agreement allowed Sattva to receive US$1.5 million if it received its fee in cash, but shares valued at approximately $8 million if Sattva took its fee in shares; and (2) the arbitrator ignored this anomaly and did not address s. 3.1 of the Agreement. [ 30 ] The Court of Appeal found that it was an absurd result to find that Sattva is entitled to an $8 million finder’s fee in light of the fact that the “maximum amount” proviso in the Agreement limits the finder’s fee to US$1.5 million.

The court was of the view that the proviso limiting the fee to US$1.5 million “when paid” should be given paramount effect (para. 47). In its opinion, giving effect to the Market Price definition could not have been the intention of the parties, nor could it have been in accordance with good business sense. IV. Issues [ 31 ] The following issues arise in this appeal: (

a) Is the issue of whether the CA Leave Court erred in granting leave under s. 31(2) of the AA properly before this Court? (

b) Did the CA Leave Court err in granting leave under s. 31(2) of the AA ? (

c) If leave was properly granted, what is the appropriate standard of review to be applied to commercial arbitral decisions made under the AA ? (

d) Did the arbitrator reasonably construe the Agreement as a whole? (

e) Did the CA Appeal Court err in holding that it was bound by comments regarding the merits of the appeal made by the CA Leave Court? V. Analysis A. The Leave Issue Is Properly Before This Court

[32] Sattva argues, in part, that the CA Leave Court erred in granting leave to appeal from the arbitrator’s decision. InSattva’s view, the CA Leave Court did not identify a question of law, a requirement to obtain leave pursuant to s. 31(2) of the AA.Creston argues that this issue is not properly before this Court. Creston makes two arguments in support of this point. [33] First, Creston argues that this issue was not advanced in Sattva’s application for leave to appeal to this Court. Thisargument must fail.

Unless this Court places restrictions in the order granting leave, the order granting leave is “at large”. Accordingly,appellants may raise issues on appeal that were not set out in the leave application. However, the Court may exercise its discretion torefuse to deal with issues that were not addressed in the courts below, if there is prejudice to the respondent, or if for any other reason theCourt considers it appropriate not to deal with a question. [34] Here, this Court’s order granting leave to appeal from both the CA Leave Court decision and the CA Appeal Courtdecision contained no restrictions ( ).

The issue — whether the proposed appeal was on a question of law — wasexpressly argued before, and was dealt with in the judgments of, the SC Leave Court and the CA Leave Court. There is no reason Sattvashould be precluded from raising this issue on appeal despite the fact it was not mentioned in its application for leave to appeal to thisCourt. [35] Second, Creston argues that the issue of whether the CA Leave Court identified a question of law is not properlybefore this Court because Sattva did not contest this decision before all of the lower courts.

Specifically, Creston states that Sattva did notargue that the question on appeal was one of mixed fact and law before the SC Appeal Court and that it conceded the issue on appealwas a question of law before the CA Appeal Court. This argument must also fail. At the SC Appeal Court, it was not open to Sattva toreargue the question of whether leave should have been granted. The SC Appeal Court was bound by the CA Leave Court’s finding thatleave should have been granted, including the determination that a question of law had been identified.

Accordingly, Sattva could hardlybe expected to reargue before the SC Appeal Court a question that had been determined by the CA Leave Court. There is nothing in theAA to indicate that Sattva could have appealed the leave decision made by a panel of the Court of Appeal to another panel of the samecourt.

The fact that Sattva did not reargue the issue before the SC Appeal Court or CA Appeal Court does not prevent it from raising theissue before this Court, particularly since Sattva was also granted leave to appeal the CA Leave Court decision by this Court. [36] While this Court may decline to grant leave where an issue sought to be argued before it was not argued in thecourts appealed from, that is not this case.

Here, whether leave from the arbitrator’s decision had been sought by Creston on a questionof law or a question of mixed fact and law had been argued in the lower leave courts. [37] Accordingly, the issue of whether the CA Leave Court erred in finding a question of law for the purposes of grantingleave to appeal is properly before this Court. B. The CA Leave Court Erred in Granting Leave Under Section 31(2) of the AA

(1) Considerations Relevant to Granting or Denying Leave to Appeal Under the AA [38] Appeals from commercial arbitration decisions are narrowly circumscribed under the AA. Under s. 31(1), appealsare limited to either questions of law where the parties consent to the appeal or to questions of law where the parties do not consent butwhere leave to appeal is granted. Section 31(2) of the AA, reproduced in its entirety in Appendix III, sets out the requirements for leave:

(2) In an application for leave under subsection (1)(b), the court may grant leave if it determines that (

a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point oflaw may prevent a miscarriage of justice, (

b) the point of law is of importance to some class or body of persons of which the applicant is a member, or (

c) the point of law is of general or public importance. [39] The B.C. courts have found that the words “may grant leave” in s. 31(2) of the AA give the courts judicial discretionto deny leave even where the statutory requirements have been met (British Columbia Institute of Technology (Student Assn.) v. BritishColumbia Institute of Technology, 2000 BCCA 496, 192 D.L.R. (4th) 122 (“BCIT”), at paras. 25-26).

Appellate review of an arbitrator’saward will only occur where the requirements of s. 31(2) are met and where the leave court does not exercise its residual discretion tononetheless deny leave. [40] Although Creston’s application to the SC Leave Court sought leave pursuant to s. 31(2)(a), (

b) and (c), it appearsthe arguments before that court and throughout focused on s. 31(2)(a). The SC Leave Court’s decision quotes a lengthy passage fromBCIT that focuses on the requirements of s. 31(2)(a). The SC Leave Court judge noted that both parties conceded the first requirement ofs. 31(2)(a): that the issue be of importance to the parties. The CA Leave Court decision expressed concern that denying leave might giverise to a miscarriage of justice — a criterion only found in s. 31(2)(a).

Finally, neither the lower courts’ leave decisions nor the argumentsbefore this Court reflected arguments about the question of law being important to some class or body of persons of which the applicantis a member (s. 31(2)(b)) or being a point of law of general or public importance (s. 31(2)(c)). Accordingly, the following analysis willfocus on s. 31(2)(a).

(2) The Result Is Important to the Parties

[41] In order for leave to be granted from a commercial arbitral award, a threshold requirement must be met: leave mustbe sought on a question of law. However, before dealing with that issue, it will be convenient to quickly address another requirement ofs. 31(2)(

a) on which the parties agree: whether the importance of the result of the arbitration to the parties justifies the intervention ofthe court. Justice Saunders explained this criterion in BCIT as requiring that the result of the arbitration be “sufficiently important”, interms of principle or money, to the parties to justify the expense and time of court proceedings (para. 27). The parties in this case haveagreed that the result of the arbitration is of importance to each of them.

In view of the relatively large monetary amount in dispute and inlight of the fact that the parties have agreed that the result is important to them, I accept that the importance of the result of thearbitration to the parties justifies the intervention of the court. This requirement of s. 31(2)(

a) is satisfied.

(3) The Question Under Appeal Is Not a Question of Law (

a) When Is Contractual

Interpretation a Question of Law? [42] Under s. 31 of the AA, the issue upon which leave is sought must be a question of law. For the purpose of identifyingthe appropriate standard of review or, as is the case here, determining whether the requirements for leave to appeal are met, reviewingcourts are regularly required to determine whether an issue decided at first instance is a question of law, fact, or mixed fact and law. [43] Historically, determining the legal rights and obligations of the parties under a written contract was considered aquestion of law (King v.

Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 20, perSteel J.A.; K. Lewison, The

Interpretation of Contracts (5th ed. 2011 & Supp. 2013), at pp. 173-76; and G. R. Hall, CanadianContractual

Interpretation Law (2nd ed. 2012), at pp. 125-26). This rule originated in England at a time when there were frequent civiljury trials and widespread illiteracy. Under those circumstances, the

interpretation of written documents had to be considered questionsof law because only the judge could be assured to be literate and therefore capable of reading the contract (Hall, at p. 126; and Lewison,at pp. 173-74). [44] This historical rationale no longer applies. Nevertheless, courts in the United Kingdom continue to treat theinterpretation of a written contract as always being a question of law (Thorner v. Major, [2009] UKHL 18, [2009] 3 All E.R. 945, atparas. 58 and 82-83; and Lewison, at pp. 173-77).

They do this despite the fact that U.K. courts consider the surrounding circumstances,a concept addressed further below, when interpreting a written contract (Prenn v. Simmonds, [1971] 3 All E.R. 237 (H.L.); and ReardonSmith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.)). [45] In Canada, there remains some support for the historical approach. See for example Jiro Enterprises Ltd. v. Spencer,2008 ABCA 87 , at para. 10; QK Investments Inc. v. Crocus Investment Fund, 2008 MBCA 21, 290 D.L.R. (4th) 84, at para. 26;Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd., 2010 ABCA 126, 25 Alta.

L.R. (5th) 221, at paras. 11-12; and Minister ofNational Revenue v. Costco Wholesale Canada Ltd., 2012 FCA 160, 431 N.R. 78, at para. 34. However, some Canadian courts haveabandoned the historical approach and now treat the

interpretation of written contracts as an exercise involving either a question of law ora question of mixed fact and law. See for example WCI Waste Conversion Inc. v. ADI International Inc., 2011 PECA 14, 309 Nfld. &P.E.I.R. 1, at para. 11; 269893 Alberta Ltd. v. Otter Bay Developments Ltd., 2009 BCCA 37, 266 B.C.A.C. 98, at para. 13; Hayes ForestServices Ltd. v. Weyerhaeuser Co., 2008 BCCA 31, 289 D.L.R. (4th) 230, at para. 44; Bell Canada v.

The Plan Group, 2009 ONCA 548,96 O.R. (3d) 81, at paras. 22-23 (majority reasons, per Blair J.A.) and paras. 133-35 (per Gillese J.A., in dissent, but not on this point);and King, at paras. 20-23. [46] The shift away from the historical approach in Canada appears to be based on two developments. The first is theadoption of an approach to contractual

interpretation which directs courts to have regard for the surrounding circumstances of thecontract — often referred to as the factual matrix — when interpreting a written contract (Hall, at pp. 13, 21-25 and 127; and J. D.McCamus, The Law of Contracts (2nd ed. 2012), at pp. 749-51). The second is the explanation of the difference between questions oflaw and questions of mixed fact and law provided in Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R. 748, at para. 35, and Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 26 and 31-36. [47] Regarding the first development, the

interpretation of contracts has evolved towards a practical, common-senseapproach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scopeof their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, atpara. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1S.C.R. 69, at paras. 64-65, per Cromwell J.).

To do so, a decision-maker must read the contract as a whole, giving the words used theirordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of thecontract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when lookingat words on their own, because words alone do not have an immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . .

In a commercial contract it is certainlyright that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of thetransaction, the background, the context, the market in which the parties are operating. (Reardon Smith Line, at p. 574, per Lord Wilberforce) [48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreementand the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173Man.

R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann inInvestors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.): The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of itswords. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using thosewords against the relevant background would reasonably have been understood to mean. [p. 115]

[49] As to the second development, the historical approach to contractual

interpretation does not fit well with thedefinition of a pure question of law identified in Housen and Southam. Questions of law “are questions about what the correct legal testis” (Southam, at para. 35). Yet in contractual

interpretation, the goal of the exercise is to ascertain the objective intent of the parties — afact-specific goal — through the application of legal principles of

interpretation. This appears closer to a question of mixed fact and law,defined in Housen as “applying a legal standard to a set of facts” (para. 26; see also Southam, at para. 35). However, some courts havequestioned whether this definition, which was developed in the context of a negligence action, can be readily applied to questions ofcontractual

interpretation, and suggest that contractual

interpretation is primarily a legal affair (see for example Bell Canada, at para.25). [50] With respect for the contrary view, I am of the opinion that the historical approach should be abandoned.Contractual

interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual

interpretationare applied to the words of the written contract, considered in light of the factual matrix. [51] The purpose of the distinction between questions of law and those of mixed fact and law further supports thisconclusion.

One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit theintervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute.It reflects the role of courts of appeal in ensuring the consistency of the law, rather than in providing a new forum for parties to continuetheir private litigation. For this reason, Southam identified the degree of generality (or “precedential value”) as the key differencebetween a question of law and a question of mixed fact and law.

The more narrow the rule, the less useful will be the intervention of thecourt of appeal: If a court were to decide that driving at a certain speed on a certain road under certain conditions was negligent, its decision would nothave any great value as a precedent. In short, as the level of generality of the challenged proposition approaches utter particularity, thematter approaches pure application, and hence draws nigh to being an unqualified question of mixed law and fact. See R. P. Kerans,Standards of Review Employed by Appellate Courts (1994), at pp. 103-108.

Of course, it is not easy to say precisely where the lineshould be drawn; though in most cases it should be sufficiently clear whether the dispute is over a general proposition that might qualifyas a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in thefuture. [para. 37] [52] Similarly, this Court in Housen found that deference to fact-finders promoted the goals of limiting the number,length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings (paras. 16-17).

These principles also weighin favour of deference to first instance decision-makers on points of contractual

interpretation. The legal obligations arising from acontract are, in most cases, limited to the interest of the particular parties. Given that our legal system leaves broad scope to tribunals offirst instance to resolve issues of limited application, this supports treating contractual

interpretation as a question of mixed fact and law. [53] Nonetheless, it may be possible to identify an extricable question of law from within what was initially characterizedas a question of mixed fact and law (Housen, at paras. 31 and 34-35). Legal errors made in the course of contractual

interpretationinclude “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider arelevant factor” (King, at para. 21). Moreover, there is no question that many other issues in contract law do engage substantive rules oflaw: the requirements for the formation of the contract, the capacity of the parties, the requirement that certain contracts be evidenced inwriting, and so on. [54] However, courts should be cautious in identifying extricable questions of law in disputes over contractualinterpretation.

Given the statutory requirement to identify a question of law in a leave application pursuant to s. 31(2) of the AA, theapplicant for leave and its counsel will seek to frame any alleged errors as questions of law. The legislature has sought to restrict suchappeals, however, and courts must be careful to ensure that the proposed ground of appeal has been properly characterized.

The warningexpressed in Housen to exercise caution in attempting to extricate a question of law is relevant here: Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it isoften difficult to extricate the legal questions from the factual. It is for this reason that these matters are referred to as questions of“mixed law and fact”.

Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact” . . . . [para. 36] [55] Although that caution was expressed in the context of a negligence case, it applies, in my opinion, to contractualinterpretation as well. As mentioned above, the goal of contractual

interpretation, to ascertain the objective intentions of the parties, isinherently fact specific. The close relationship between the selection and application of principles of contractual

interpretation and theconstruction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from theinterpretation process will be rare. In the absence of a legal error of the type described above, no appeal lies under the AA from anarbitrator’s

interpretation of a contract. (

b) The Role and Nature of the “Surrounding Circumstances” [56] I now turn to the role of the surrounding circumstances in contractual

interpretation and the nature of the evidencethat can be considered. The discussion here is limited to the common law approach to contractual

interpretation; it does not seek to applyto or alter the law of contractual

interpretation governed by the Civil Code of Québec. [57] While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never beallowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining suchevidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words ofthe contract. The

interpretation of a written contractual provision must always be grounded in the text and read in light of the entirecontract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot usethem to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel MobilityCellular Inc. (1997), (BC CA), 101 B.C.A.C. 62). [58] The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily

vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the timeof the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within theknowledge of both parties at or before the date of contracting.

Subject to these requirements and the parol evidence rule discussed below,this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of thedocument would have been understood by a reasonable man” (Investors Compensation Scheme, at p. 114). Whether something was orreasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact. (

c) Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule [59] It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. Theparol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, orcontradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, amongother things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v.

Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finalityand certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack awritten contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., (SCC), [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.). [60] The parol evidence rule does not apply to preclude evidence of the surrounding circumstances.

Such evidence isconsistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the writtenwords chosen by the parties, not to change or overrule the meaning of those words.

The surrounding circumstances are facts known orfacts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliabilitydoes not arise. [61] Some authorities and commentators suggest that the parol evidence rule is an anachronism, or, at the very least, oflimited application in view of the myriad of exceptions to it (see for example Gutierrez v. Tropic International Ltd. (2002), (ON CA), 63 O.R. (3d) 63 (C.A.), at paras. 19-20; and Hall, at pp. 53-64).

For the purposes of this appeal, it is sufficient to saythat the parol evidence rule does not apply to preclude evidence of surrounding circumstances when interpreting the words of a writtencontract. (

d) Application to the Present Case [62] In this case, the CA Leave Court granted leave on the following issue: “Whether the Arbitrator erred in law in failingto construe the whole of the Finder’s Fee Agreement . . .” (A.R., vol. I, at p. 62). [63] As will be explained below, while the requirement to construe a contract as a whole is a question of law that could— if extricable — satisfy the threshold requirement under s. 31 of the AA, I do not think this question was properly extricated in thiscase. [64] I accept that a fundamental principle of contractual

interpretation is that a contract must be construed as a whole(McCamus, at pp. 761-62; and Hall, at p. 15). If the arbitrator did not take the “maximum amount” proviso into account, as alleged byCreston, then he did not construe the Agreement as a whole because he ignored a specific and relevant provision of the Agreement. Thisis a question of law that would be extricable from a finding of mixed fact and law. [65] However, it appears that the arbitrator did consider the “maximum amount” proviso.

Indeed, the CA Leave Courtacknowledges that the arbitrator had considered that proviso, since it notes that he turned his mind to the US$1.5 million maximumamount, an amount that can only be calculated by referring to the TSXV policy referenced in the “maximum amount” proviso in s. 3.1 ofthe Agreement. As I read its reasons, rather than being concerned with whether the arbitrator ignored the maximum amount proviso,which is what Creston alleges in this Court, the CA Leave Court decision focused on how the arbitrator construed s. 3.1 of theAgreement, which included the maximum amount proviso (paras. 25-26).

For example, the CA Leave Court expressed concern that thearbitrator did not address the “incongruity” in the fact that the value of the fee would vary “hugely” depending on whether it was takenin cash or shares (para. 25). [66] With respect, the CA Leave Court erred in finding that the construction of s. 3.1 of the Agreement constituted aquestion of law.

As explained by Justice Armstrong in the SC Appeal Court decision, construing s. 3.1 and taking account of the provisorequired relying on the relevant surrounding circumstances, including the sophistication of the parties, the fluctuation in share prices, andthe nature of the risk a party assumes when deciding to accept a fee in shares as opposed to cash. Such an exercise raises a question ofmixed fact and law.

There being no question of law extricable from the mixed fact and law question of how s. 3.1 and the proviso shouldbe interpreted, the CA Leave Court erred in granting leave to appeal. [67] The conclusion that Creston’s application for leave to appeal raised no question of law would be sufficient to disposeof this appeal.

However, as this Court rarely has the opportunity to address appeals of arbitral awards, it is, in my view, useful to explainthat, even had the CA Leave Court been correct in finding that construction of s. 3.1 of the Agreement constituted a question of law, itshould have nonetheless denied leave to appeal as the application also failed the miscarriage of justice and residual discretion stages ofthe leave analysis set out in s. 31(2)(

a) of the AA.

(4) May Prevent a Miscarriage of Justice (

a) Miscarriage of Justice for the Purposes of Section 31(2)(

a) of the AA [68] Once a question of law has been identified, the court must be satisfied that the determination of that point of law onappeal “may prevent a miscarriage of justice” in order for it to grant leave to appeal pursuant to s. 31(2)(

a) of the AA. The first step inthis analysis is defining miscarriage of justice for the purposes of s. 31(2)(a).

[69] In BCIT, Justice Saunders discussed the miscarriage of justice requirement under s. 31(2)(a). She affirmed thedefinition set out in Domtar Inc. v. Belkin Inc. (1989), (BC CA), 39 B.C.L.R. (2d) 257 (C.A.), which required the errorof law in question to be a material issue that, if decided differently, would lead to a different result: “. . . if the point of law were decideddifferently, the arbitrator would have been led to a different result. In other words, was the alleged error of law material to the decision;does it go to its heart?” (BCIT, at para. 28). See also Quan v.

Cusson, 2009 SCC 62, [2009] 3 S.C.R. 712, which discusses the test ofwhether “some substantial wrong or miscarriage of justice has occurred” in the context of a civil jury trial (para. 43). [70] Having regard to BCIT and Quan, I am of the opinion that in order to rise to the level of a miscarriage of justice forthe purposes of s. 31(2)(

a) of the AA, an alleged legal error must pertain to a material issue in the dispute which, if decided differently,would affect the result of the case. [71] According to this standard, a determination of a point of law “may prevent a miscarriage of justice” only where theappeal itself has some possibility of succeeding.

An appeal with no chance of success will not meet the threshold of “may prevent amiscarriage of justice” because there would be no chance that the outcome of the appeal would cause a change in the final result of thecase. [72] At the leave stage, it is not appropriate to consider the full merits of a case and make a final determination regardingwhether an error of law was made.

However, some preliminary consideration of the question of law is necessary to determine whetherthe appeal has the potential to succeed and thus to change the result in the case. [73] BCIT sets the threshold for this preliminary assessment of the appeal as “more than an arguable point” (para. 30). With respect, once an arguable point has been made out, it is not apparent what more is required to meet the “more than an arguablepoint” standard.

Presumably, the leave judge would have to delve more deeply into the arguments around the question of law on appealthan would be appropriate at the leave stage to find more than an arguable point. Requiring this closer examination of the point of law, inmy respectful view, blurs the line between the function of the court considering the leave application and the court hearing the appeal. [74] In my opinion, the appropriate threshold for assessing the legal question at issue under s. 31(2) is whether it hasarguable merit.

The arguable merit standard is often used to assess, on a preliminary basis, the merits of an appeal at the leave stage (seefor example Quick Auto Lease Inc. v. Nordin, 2014 MBCA 32, 303 Man. R. (2d) 262, at para. 5; and R. v. Fedossenko, 2013 ABCA 164, at para. 7). “Arguable merit” is a well-known phrase whose meaning has been expressed in a variety of ways: “a reasonableprospect of success” (Quick Auto Lease, at para. 5; and Enns v. Hansey, 2013 MBCA 23 , at para. 2); “some hope of success”and “sufficient merit” (R. v. Hubley, 2009 PECA 21, 289 Nfld. & P.E.I.R. 174, at para. 11); and “credible argument” (R. v.

Will, 2013SKCA 4, 405 Sask. R. 270, at para. 8). In my view, the common thread among the various expressions used to describe arguable merit isthat the issue raised by the applicant cannot be dismissed through a preliminary examination of the question of law.

In order to decidewhether the award should be set aside, a more thorough examination is necessary and that examination is appropriately conducted by thecourt hearing the appeal once leave is granted. [75] Assessing whether the issue raised by an application for leave to appeal has arguable merit must be done in light ofthe standard of review on which the merits of the appeal will be judged. This requires a preliminary assessment of the applicablestandard of review.

As I will later explain, reasonableness will almost always apply to commercial arbitrations conducted pursuant to theAA, except in the rare circumstances where the question is one that would attract a correctness standard, such as a constitutional questionor a question of law of central importance to the legal system as a whole and outside the adjudicator’s expertise.

Therefore, the leaveinquiry will ordinarily ask whether there is any arguable merit to the position that the arbitrator’s decision on the question at issue isunreasonable, keeping in mind that the decision-maker is not required to refer to all the arguments, provisions or jurisprudence or tomake specific findings on each constituent element, for the decision to be reasonable (Newfoundland and Labrador Nurses’ Union v.Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, at para. 16).

Of course, the leave court’s assessmentof the standard of review is only preliminary and does not bind the court which considers the merits of the appeal. As such, this shouldnot be taken as an invitation to engage in extensive arguments or analysis about the standard of review at the leave stage. [76] In BCIT, Saunders J.A. considered the stage of s. 31(2)(

a) of the AA at which an examination of the merits of theappeal should occur. At the behest of one of the parties, she considered examining the merits under the miscarriage of justice criterion.However, she decided that a consideration of the merits was best done at the residual discretion stage. Her reasons indicate that thisdecision was motivated by the desire to take a consistent approach across s. 31(2)(a), (

b) and (c): Where, then, if anywhere, does consideration of the merits of the appeal belong? Mr. Roberts for the Student Association contends thatany consideration of the merits of the appeal belongs in the determination of whether a miscarriage of justice may occur; that is, underthe second criterion. I do not agree. In my view, the apparent merit or lack of merit of an appeal is part of the exercise of the residualdiscretion, and applies equally to all three subsections, (

a) through (c). Just as an appeal woefully lacking in merit should not attract leaveunder (b) (of importance to a class of people including the applicant) or (c) (of general or public importance), so too it should not attractleave under (a). Consideration of the merits, for consistency in the

section as a whole, should be made as part of the exercise of residualdiscretion. [para. 29] [77] I acknowledge the consistency rationale. However, in my respectful opinion, the desire for a consistent approach tos. 31(2)(a), (

b) and (

c) cannot override the text of the legislation. Unlike s. 31(2)(

b) and (c), s. 31(2)(

a) requires an assessment todetermine whether allowing leave to appeal “may prevent a miscarriage of justice”. It is my opinion that a preliminary assessment of thequestion of law is an implicit component in a determination of whether allowing leave “may prevent a miscarriage of justice”. [78] However, in an application for leave to appeal pursuant to s. 31(2)(

b) or (c), neither of which contain a miscarriageof justice requirement, I agree with Justice Saunders in BCIT that a preliminary examination of the merits of the question of law shouldbe assessed at the residual discretion stage of the analysis as considering the merits of the proposed appeal will always be relevant whendeciding whether to grant leave to appeal under s. 31. [79] In sum, in order to establish that “the intervention of the court and the determination of the point of law may prevent

a miscarriage of justice” for the purposes of s. 31(2) (

a) of the AA , an applicant must demonstrate that the point of law on appeal is material to the final result and has arguable merit. (

b) Application to the Present Case [ 80 ] The CA Leave Court found that the arbitrator may have erred in law by not interpreting the Agreement as a whole, specifically in ignoring the “maximum amount” proviso. Accepting that this is a question of law for these purposes only, a determination of the question would be material because it could change the ultimate result arrived at by the arbitrator. The arbitrator awarded $4.14 million in damages on the basis that there was an 85 percent chance the TSXV would approve a finder’s fee paid in $0.15 shares.

If Creston’s argument is correct and the $0.15 share price is foreclosed by the “maximum amount” proviso, damages would be reduced to US$1.5 million, a significant reduction from the arbitrator’s award of damages. [ 81 ] As s. 31(2)(

a) of the AA is the relevant provision in this case, a preliminary assessment of the question of law will be conducted in order to determine if a miscarriage of justice could have occurred had Creston been denied leave to appeal. Creston argues that the fact that the arbitrator’s conclusion results in Sattva receiving shares valued at considerably more than the US$1.5 million maximum dictated by the “maximum amount” proviso is evidence of the arbitrator’s failure to consider that proviso. [ 82 ] However, the arbitrator did refer to s. 3.1, the “maximum amount” proviso, at two points in his decision: paras. 18 and 23(a). For example, at para. 23 he stated: In

summary, then, as of March 27, 2007 it was clear and beyond argument that under the Agreement: (

a) Sattva was entitled to a fee equal to the maximum amount payable pursuant to the rules and policies of the TSX Venture Exchange –

section 3.1. It is common ground that the quantum of this fee is US$1,500,000. (

b) The fee was payable in shares based on the Market Price, as defined in the Agreement, unless Sattva elected to take it in cash or a combination of cash and shares. (

c) The Market Price, as defined in the Agreement, was $0.15. [Emphasis added.] [ 83 ] Although the arbitrator provided no express indication that he considered how the “maximum amount” proviso interacted with the Market Price definition, such consideration is implicit in his decision. The only place in the contract that specifies that the amount of the fee is calculated as US$1.5 million is the “maximum amount” proviso’s reference to s. 3.3 of the TSXV Policy 5.1. The arbitrator acknowledged that the quantum of the fee is US$1.5 million and awarded Sattva US$1.5 million in shares priced at $0.15.

Contrary to Creston’s argument that the arbitrator failed to consider the proviso in construing the Agreement, it is apparent on a preliminary examination of the question that the arbitrator did in fact consider the “maximum amount” proviso. [ 84 ] Accordingly, even had the CA Leave Court properly identified a question of law, leave to appeal should have been denied. The requirement that there be arguable merit that the arbitrator’s decision was unreasonable is not met and the miscarriage of justice threshold was not satisfied.

(5) Residual Discretion to Deny Leave (

a) Considerations in Exercising Residual Discretion in a Section 31(2)(

a) Leave Application [ 85 ] The B.C. courts have found that the words “may grant leave” in s. 31(2) of the AA confer on the court residual discretion to deny leave even where the requirements of s. 31(2) are met ( BCIT , at paras. 9 and 26 ).

In BCIT , Saunders J.A. sets out a non-exhaustive list of considerations that would be applicable to the exercise of discretion (para. 31): 1. “the apparent merits of the appeal”; 2. “the degree of significance of the issue to the parties, to third parties and to the community at large”; 3. “the circumstances surrounding the dispute and adjudication including the urgency of a final answer”; 4. “other temporal considerations including the opportunity for either party to address the result through other avenues”; 5. “the conduct of the parties”;

6. “the stage of the process at which the appealed decision was made”; 7. “respect for the forum of arbitration, chosen by the parties as their means of resolving disputes”; and 8. “recognition that arbitration is often intended to provide a speedy and final dispute mechanism, tailor-made for the issueswhich may face the parties to the arbitration agreement”. [86] I agree with Justice Saunders that it is not appropriate to create what she refers to as an “immutable checklist” offactors to consider in exercising discretion under s. 31(2) (BCIT, at para. 32).

However, I am unable to agree that all the listedconsiderations are applicable at this stage of the analysis. [87] In exercising its statutorily conferred discretion to deny leave to appeal pursuant to s. 31(2)(a), a court should haveregard to the traditional bases for refusing discretionary relief: the parties’ conduct, the existence of alternative remedies, and any unduedelay (Immeubles Port Louis Ltée v. Lafontaine (Village), (SCC), [1991] 1 S.C.R. 326, at pp. 364-67). Balance ofconvenience considerations are also involved in determining whether to deny discretionary relief (MiningWatch Canada v.

Canada(Fisheries and Oceans), 2010 SCC 2, [2010] 1 S.C.R. 6, at para. 52). This would include the urgent need for a final answer. [88] With respect to the other listed considerations and addressed in turn below, it is my opinion that they have alreadybeen considered elsewhere in the s. 31(2)(

a) analysis or are more appropriately considered elsewhere under s. 31(2). Once considered,these matters should not be assessed again under the court’s residual discretion. [89] As discussed above, in s. 31(2)(a), a preliminary assessment of the merits of the question of law at issue in the leaveapplication is to be considered in determining the miscarriage of justice question. The degree of significance of the issue to the parties iscovered by the “importance of the result of the arbitration to the parties” criterion in s. 31(2)(a). The degree of significance of the issueto third parties and to the community at large should not be considered under s. 31(2)(

a) as the AA sets these out as separate grounds forgranting leave to appeal under s. 31(2)(

b) and (c). Furthermore, respect for the forum of arbitration chosen by the parties is aconsideration that animates the legislation itself and can be seen in the high threshold to obtain leave under s. 31(2)(a). Recognition thatarbitration is often chosen as a means to obtain a fast and final resolution tailor-made for the issues is already reflected in the urgent needfor a final answer. [90] As for the stage of the process at which the decision sought to be appealed was made, it is not a considerationrelevant to the exercise of the court’s residual discretion to deny leave under s. 31(2)(a).

This factor seeks to address the concern thatgranting leave to appeal an interlocutory decision may be premature and result in unnecessary fragmentation and delay of the legalprocess (D. J. M. Brown and J. M. Evans, with the assistance of C. E. Deacon, Judicial Review of Administrative Action in Canada(loose-leaf), at pp. 3-67 to 3-76).

However, any such concern will have been previously addressed by the leave court in its analysis ofwhether a miscarriage of justice may arise; more specifically, whether the interlocutory issue has the potential to affect the final result.As such, the above-mentioned concerns should not be considered anew. [91] In sum, a non-exhaustive list of discretionary factors to consider in a leave application under s. 31(2)(

a) of the AAwould include: • conduct of the parties; • existence of alternative remedies; • undue delay; and • the urgent need for a final answer. [92] These considerations could, where applicable, be a sound basis for declining leave to appeal an arbitral award evenwhere the statutory criteria of s. 31(2)(

a) have been met. However, courts should exercise such discretion with caution. Having found anerror of law and, at least with respect to s. 31(2)(a), a potential miscarriage of justice, these discretionary factors must be weighedcarefully before an otherwise eligible appeal is rejected on discretionary grounds. (

b) Application to the Present Case [93] The SC Leave Court judge denied leave on the basis that there was no question of law. Even had he found a questionof law, the SC Leave Court judge stated that he would have exercised his residual discretion to deny leave for two reasons: first, becauseof Creston’s conduct in misrepresenting the status of the finder’s fee issue to the TSXV and Sattva; and second, “on the principle thatone of the objectives of the [AA] is to foster and preserve the integrity of the arbitration system” (para. 41).

The CA Leave Courtoverruled the SC Leave Court on both of these discretionary grounds. [94] For the reasons discussed above, fostering and preserving the integrity of the arbitral system should not be a discretediscretionary consideration under s. 31(2)(a). While the scheme of s. 31(2) recognizes this objective, the exercise of discretion mustpertain to the facts and circumstances of a particular case. This general objective is not a discretionary matter for the purposes of denying

leave. [95] However, conduct of the parties is a valid consideration in the exercise of the court’s residual discretion under s.31(2)(a). A discretionary decision to deny leave is to be reviewed with deference by an appellate court. A discretionary decision shouldnot be interfered with merely because an appellate court would have exercised the discretion differently (R. v. Bellusci, 2012 SCC 44,[2012] 2 S.C.R. 509, at paras. 18 and 30).

An appellate court is only justified in interfering with a lower court judge’s exercise ofdiscretion if that judge misdirected himself or if his decision is so clearly wrong as to amount to an injustice (R. v. Bjelland, 2009 SCC38, [2009] 2 S.C.R. 651, at para. 15; and R. v. Regan, 2002 SCC 12, [2002] 1 S.C.R. 297, at para. 117). [96] Here, the SC Leave Court relied upon a well-accepted consideration in deciding to deny discretionary relief: themisconduct of Creston.

The CA Leave Court overturned this decision on the grounds that Creston’s conduct was “not directly relevant tothe question of law” advanced on appeal (at para. 27). [97] The CA Leave Court did not explain why misconduct need be directly relevant to a question of law for the purposeof denying leave. I see nothing in s. 31(2) of the AA that would limit a leave judge’s exercise of discretion in the manner suggested by theCA Leave Court.

My reading of the jurisprudence does not support the view that misconduct must be directly relevant to the question tobe decided by the court. [98] In Homex Realty and Development Co. v. Corporation of the Village of Wyoming, (SCC), [1980] 2S.C.R. 1011, at pp. 1037-38, misconduct by a party not directly relevant to the question at issue before the court resulted in denial of aremedy.

The litigation in Homex arose out of a disagreement regarding whether the purchaser of lots in a subdivision, Homex, hadassumed the obligations of the vendor under a subdivision agreement to provide “all the requirements, financial and otherwise” for theinstallation of municipal services on a parcel of land that had been subdivided (pp. 1015-16). This Court determined that Homex had notbeen accorded procedural fairness when the municipality passed a by-law related to the dispute (p. 1032).

Nevertheless, discretionaryrelief to quash the by-law was denied because, among other things, Homex had sought “throughout all these proceedings to avoid theburden associated

[…]