Teal Cedar Products Ltd. Appellant v. Her Majesty The Queen in Right of the Province of British Columbia, 2017 SCC 32

SUPREME COURT OF CANADA Citation: Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688 Appeal Heard: November 1, 2016 Judgment Rendered: June 22, 2017 Docket: 36595 Between: Teal Cedar Products Ltd. Appellant and Her Majesty The Queen in Right of the Province of British Columbia Respondent And Between: Teal Cedar Products Ltd. Appellant and Her Majesty The Queen in Right of the Province of British Columbia Respondent Coram: McLachlin C.J. and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ.

Reasons for Judgment: (paras. 1 to 103) Gascon J. (McLachlin C.J. and Abella, Karakatsanis and Wagner JJ. concurring) Joint Reasons Dissenting in Part: (paras. 104 to 139) Moldaver and Côté JJ. (Brown and Rowe JJ. concurring)

Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688 Teal Cedar Products Ltd. Appellant v. Her Majesty the Queen in Right of the Province of British Columbia Respondent - and - Teal Cedar Products Ltd. Appellant v. Her Majesty the Queen in Right of the Province of British Columbia Respondent Indexed as: Teal Cedar Products Ltd. v. British Columbia 2017 SCC 32 File No.: 36595. 2016: November 1; 2017: June 22.

Present: McLachlin C.J. and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ. on appeal from the court of appeal for british columbia Arbitration — Appeals — Jurisdiction — Standard of review — Commercial arbitration awards — Province reducing forestry company’s access to improvements on Crown land used to harvest timber — Parties disagreeing as to amount of compensation owed to forestry company and entering into arbitration — Leave to appeal award sought by parties pursuant to s. 31(2) of the Arbitration Act — Appeal of award dismissed in part but dismissal reversed by Court of Appeal — Whether Court of Appeal erred in construing issues decided by arbitrator as questions of law subject to appellate review — Arbitration Act, R.S.B.C. 1996, c. 55, s. 31 .

Contracts —

Interpretation — Use of factual matrix — Province reducing forestry company’s access to improvements on Crown land used to harvest timber — Parties entering into agreement to negotiate compensation owed to forestry company for loss of access to improvements — Agreement precluding payment of interest as part of compensation — Parties disagreeing as to amount of compensation and entering into arbitration — Whether legal question arises from arbitrator’s contractual

interpretation of forestry company’s entitlement to interest. Natural resources — Forests — Permits and licences — Province reducing forestry company’s access to improvements on Crown land used to harvest timber — Parties disagreeing as to amount of compensation owed to forestry company and entering into arbitration — Whether arbitrator’s conclusion that forestry company’s losses may be valued on basis of depreciation replacement cost method was reasonable — Forestry Revitalization Act, S.B.C. 2003, c. 17, s. 6(4) . T, a forestry company, holds licences to harvest Crown timber in the province of British Columbia.

When the province reduced the volume of T’s allowable harvest and deleted certain areas from the related Crown land base, the parties were unable to settle how much compensation the province owed to T for reducing the latter’s access to certain improvements such as roads and bridges which T used to harvest the timber. Consequently, their dispute was submitted to arbitration in accordance with the Forestry Revitalization Act (“ Revitalization Act ”). The arbitrator was seized of an issue of statutory

interpretation to determine the proper valuation method for the improvements pursuant to the Revitalization Act , which he found to be the depreciation replacement cost method. The arbitrator also ruled on an issue of contractual

interpretation, concluding that an agreement reached by the parties prior to arbitration did not exclude interest from the province’s payment of compensation to T for the improvements. Finally, on an issue of statutory application, the arbitrator determined that T was not entitled to compensation for the improvements to which it did not lose access. On appeal, the application judge upheld the arbitrator’s award except in connection with the statutory application issue, which was remitted to the arbitrator and resulted in an additional award in an amount equal to the value of the improvements.

A majority of the Court of Appeal reversed the application judge’s decision, finding that the arbitrator had erred on both the statutory

interpretation and contractual

interpretation issues, as well as in making his subsequent ruling regarding the statutory application issue. On remand for disposition in accordance with Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633, a unanimous Court of Appeal held that its disposition of the appeal was unaltered by Sattva , reaffirming its conclusion that the issues ruled upon by the arbitrator are questions of law subject to appellate review, and that the arbitrator was in error regardless of the standard of review applied.

Held (Moldaver, Côté, Brown and Rowe JJ. dissenting in part) : The appeal is allowed in part. Per McLachlin C.J. and Abella, Karakatsanis, Wagner and Gascon JJ.: The Court of Appeal’s decision on remand cannot stand in light of Sattva . The process for characterizing a question as one of three principal types — legal, factual, or mixed — is well-established, as confirmed in Sattva : legal questions are questions about what the correct legal test is; factual questions are questions about what actually took place between the parties; and mixed questions are questions about whether the facts satisfy the legal test.

While the application of a legal test to a set of facts is a mixed question, if, in the course of that application, the underlying legal test may have been altered, then a legal question arises. Such a legal question, if alleged in the context of a dispute under the Arbitration Act , and assuming the other jurisdictional requirements of that Act are met, is open to appellate review. These extricable questions of law are

better understood as a covert form of legal question — where a judge’s (or arbitrator’

s) legal test is implicit to their application of the test rather than explicit in their description of the test — than as a fourth and distinct category of questions. Courts should, however, exercise caution in identifying extricable questions of law because mixed questions, by definition, involve aspects of law. The motivations for counsel to strategically frame a mixed question as a legal question — for example, to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments — are transparent.

A narrow scope for extricable questions of law is consistent with finality in commercial arbitration and, more broadly, with deference to factual findings. Courts must be vigilant in distinguishing between a party alleging that a legal test may have been altered in the course of its application (an extricable question of law), and a party alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question).

The characterization of a question on review as a mixed question rather than as a legal question has vastly different consequences in appeals from arbitration awards and civil litigation judgments. The identification of a mixed question when appealing an arbitration award defeats a court’s appellate review jurisdiction under the Arbitration Act . In contrast, the identification of a mixed question when appealing a civil litigation judgment merely raises the standard of review. Given these principles as confirmed in Sattva , a question of statutory

interpretation is normally characterized as a legal question. In contrast, identifying a question, broadly, as one of contractual

interpretation does not necessarily resolve the nature of the question at issue. Contractual

interpretation involves factual, legal, and mixed questions, and characterizing the nature of the specific question before the court requires delicate consideration of the narrow issue actually in dispute. In general, contractual

interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contract law) to contractual facts (the contract itself and its factual matrix). In the present case, the statutory

interpretation issue, i.e. the issue of selecting a valuation method that complies with the Revitalization Act , involves two types of questions: (1) questions about the broad category of methods that are acceptable under the terms of the Revitalization Act ; and (2) questions about the specific method, within that broad category of acceptable methods, that should ultimately be applied. The former questions — the methods that are acceptable under the Revitalization Act — are a matter of statutory

interpretation and, accordingly, are questions of law. As a result, the courts have jurisdiction to review the arbitrator’s resolution of the issue in so far as that resolution involves identifying a pool of methodologies consistent with the Revitalization Act . The latter questions — the preferable method among those that are consistent with the Revitalization Act — are inextricably linked to the evidentiary record at the arbitration hearing, where various experts opined on the virtues of conflicting valuation methodologies. They are mixed questions, if not pure questions of fact.

Therefore, the courts lack jurisdiction to review the arbitrator’s selection of a specific methodology among the pool of methodologies which are consistent with the Revitalization Act . As for the contractual

interpretation issue, the courts have no jurisdiction to review the arbitrator’s decision in this regard. The arbitrator, after a lengthy and complex hearing, was best situated to weigh the factual matrix in his

interpretation of the parties’ agreement regarding the payment of interest. The fact that he may have placed significant weight on that evidence in interpreting the agreement does not engage a legal question conferring jurisdiction on the courts under the Arbitration Act as it does not alter the underlying test he applied in this case. Further, the arbitrator’s

interpretation was rooted in the words of the contract, not overwhelmed by them. While the arbitrator may have placed significant weight on the factual matrix when interpreting the meaning of “compensation”, there is no arguable merit to the claim that he interpreted that matrix isolated from the contract’s words so as to effectively create a new agreement. Likewise, on the statutory application issue, the courts have no jurisdiction to review the arbitrator’s decision in this regard. The question implicated — whether the arbitrator correctly applied the valuation methodology to a licence — is a mixed question.

As such, it is beyond the scope of appellate review. It follows that the courts’ jurisdiction is limited to the statutory

interpretation issue of identifying a pool of methodologies consistent with the Revitalization Act . The decision made on this issue was rendered in an arbitral context pursuant to the Arbitration Act . As confirmed in Sattva , the standard of review on legal questions arising from the arbitrator’s analysis of this statutory

interpretation issue is reasonableness, which is almost always the applicable standard when reviewing commercial arbitration awards. This preference for a reasonableness standard dovetails with the key policy objectives of commercial arbitration, namely efficiency and finality. And this preference is not negated here in light of the nature of the question at issue and the arbitrator’s presumed expertise. It would be an error to claim that all statutory

interpretation by an arbitrator demands correctness review simply because it engages a legal question. In contrast, where the decision under review is, for example, a civil litigation judgment, the nature of the question is dispositive of the standard of review, with factual and mixed questions being reviewed for palpable and overriding error and legal questions — including extricable questions of law — being reviewed for correctness. It is therefore critical to bear these distinctions in mind when determining the appropriate standard of review in any given case. The Court of Appeal erroneously held that the standard of review should be correctness for the statutory

interpretation issue. Its decision appears to suggest that questions of law, such as statutory

interpretation, necessarily attract a correctness standard of review. In so far as the Court of Appeal intended to make this suggestion, it is incorrect. While the nature of the question (legal, mixed, or fact) is dispositive of the standard of review in the civil litigation context, it is not in the arbitration context. With respect to the review step of the analysis, the arbitrator’s determination that the depreciation replacement cost method was consistent with the Revitalization Act was reasonable.

This decision fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, transparent, intelligible, and defensible. The claim that this method results in a windfall begs the question, i.e. it assumes that compensation equal to the value of all improvements is excessive in the course of explaining that excess.

And the basis for claiming that excessive compensation was paid in this case is the assumption that it was inappropriate for the arbitrator to order compensation in excess of T’s actual costs, despite the absence of any reference in the Revitalization Act limiting T’s compensation to its actual costs or expenses. The full “value of improvements made to Crown land” is the

language chosen by the legislature as the quantum for the compensation provision. If the provincial legislature had wanted to paycompanies less than the “value of improvements made to Crown land”, it would not have set the amount of compensation “equal to” it.As a consequence, the arbitrator’s reasoning is hardly indefensible, particularly when the wording of the compensation provision soclearly fixes compensation at the specific amount chosen by the arbitrator. In the end, the legislature is entitled to provide forestrycompanies with statutory compensation that is not quantified on the basis of the nature of their interests in the Crown land at issue andthe arbitrator’s

interpretation of the compensation provision is accordingly entitled to deference. Per Moldaver, Côté, Brown and Rowe JJ. (dissenting in part): Regardless of the applicable standard of review, thearbitrator’s

interpretation of s. 6(4) of the Revitalization Act cannot stand. The only

interpretation of s. 6(4) that withstands scrutiny oneither standard of review is that T, as a licence holder, was entitled to receive compensation only for its limited interest in theimprovements. In valuing the improvements under s. 6(4), the arbitrator was required to take into account that T, as a licence holder, didnot own the improvements, which belonged to the Crown. The plain and ordinary meaning of s. 6(4) is that T is entitled to be compensated on a basis that reflects its limited interest inthe improvements as a licence holder.

This plain meaning of s. 6(4) is consistent with the purpose of the Revitalization Act and itsexpropriation context. The Revitalization Act’s purpose is to reduce the rights of licence holders — specifically, their rights to harvesttimber and use the improvements — and to provide licence holders with compensation for these reductions. As a result of the takebacksat issue, reductions were made to T’s rights to use the improvements — not ownership rights over such improvements.

It runs counter tothe purpose of the Revitalization Act to award T compensation that exceeds the value of what it lost due to the takebacks. The cost savings approach applied by the arbitrator may be an appropriate methodology in the context of privately ownedland. But the roads and bridges at issue in this case belonged to the Crown.

Given that T did not own the improvements and had only alimited interest in the improvements as a licence holder, it cannot be said that it lost the replacement cost of the improvements when theprovince made reductions to the land base under its licences, nor can it be said that T would pay the full cost to replace the network ofimprovements at issue.

The arbitrator construed s. 6(4) of the Revitalization Act too narrowly in concluding that the distinction drawn by thisprovision between the value of the improvements and the value of the harvesting rights means that the market value of the tenure as awhole cannot be considered when determining the value of the improvements. There is nothing in the language or context of the Act tosupport this unduly restrictive reading of s. 6(4).

On the contrary, it was open to the arbitrator to select any valuation method that couldevaluate the value of the improvements to T as a licence holder, as long as the approach valued the improvements as separate and distinctfrom the harvesting rights. The market value method was available to the arbitrator under s. 6(4) of the Revitalization Act, and yet the arbitrator chose toapply a method that was inconsistent with this provision. This resulted in a substantial windfall for T.

The matter of compensation for theimprovements relating to the three licences at issue should accordingly be remitted to the arbitrator for reconsideration. Cases Cited By Gascon J. Applied: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; referred to: Canada (Director ofInvestigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R. 748; Housen v. Nikolaisen, 2002 SCC 33, [2002]2 S.C.R. 235; Heritage Capital Corp. v.

Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306; Canadian National Railway Co. v.Canada (Attorney General), 2014 SCC 40, [2014] 2 S.C.R. 135; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016SCC 37, [2016] 2 S.C.R. 23; Hayes Forest Services Ltd. v. Weyerhaeuser Co., 2008 BCCA 31, 289 D.L.R. (4th) 230; GlaswegianEnterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), (BC CA), 101 B.C.A.C. 62; Black Swan Gold Mines Ltd. v.Goldbelt Resources Ltd. (1996), (BC CA), 78 B.C.A.C. 193; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1S.C.R. 190; McLean v.

British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; Catalyst Paper Corp. v. NorthCowichan (District), 2012 SCC 2, [2012] 1 S.C.R. 5; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R.339; Toronto Area Transit Operating Authority v. Dell Holdings Ltd., (SCC), [1997] 1 S.C.R. 32; Wilson v. AtomicEnergy of Canada Ltd., 2016 SCC 29, [2016] 1 S.C.R. 770. By Moldaver and Côté JJ. (dissenting in part) CanadianOxy Chemicals Ltd. v.

Canada (Attorney General), (SCC), [1999] 1 S.C.R. 743; Rizzo & RizzoShoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27; Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., (SCC), [1993] 3 S.C.R. 724; British Columbia (Forests) v. Teal Cedar Products Ltd., 2013 SCC 51, [2013] 3 S.C.R. 301;Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160; Diggon-Hibben, Ltd. v. The King, (SCC), [1949]S.C.R. 712; MacMillan Bloedel Ltd. v. British Columbia (1995), (BC CA), 12 B.C.L.R. (3d) 134. Statutes and Regulations Cited Arbitration Act, R.S.B.C. 1996, c. 55, s. 31. Forest Act, R.S.B.C. 1996, c. 157.

Forest Planning and Practices Regulation, B.C. Reg. 14/2004, s. 79(2). Forestry Revitalization Act, S.B.C. 2003, c. 17, ss. 6, 13. Authors Cited British Columbia. Legislative Assembly. Official Report of Debates of the Legislative Assembly (Hansard), vol. 13, No. 6, 4th Sess.,

37th Parl., March 27, 2003, p. 5682. Driedger, Elmer A. Construction of Statutes , 2nd ed. Toronto: Butterworths, 1983. Hall, Geoff R. Canadian Contractual

Interpretation Law , 3rd ed. Toronto: LexisNexis, 2016. Mullan, David. “Unresolved Issues on Standard of Review in Canadian Judicial Review of Administrative Action — The Top Fifteen!” (2013), 42 Adv. Q. 1. Shorter Oxford English Dictionary on Historical Principles , 6th ed. by Angus Stevenson. Oxford: Oxford University Press, 2007, “compensation”. Todd, Eric C. E. The Law of Expropriation and Compensation in Canada , 2nd ed. Scarborough, Ont.: Carswell, 1992.

APPEAL from a judgment of the British Columbia Court of Appeal (Lowry, Chiasson and MacKenzie JJ.A.), 2015 BCCA 263 , 70 B.C.L.R. (5th) 320, 373 B.C.A.C. 211, 641 W.A.C. 211, 386 D.L.R. (4th) 40, 115 L.C.R. 1, [2015] B.C.J. No. 1180 (QL), 2015 CarswellBC 1550 (WL Can.), affirming on remand a judgment of the British Columbia Court of Appeal (Finch C.J. and Lowry and MacKenzie JJ.A.), 2013 BCCA 326 , 46 B.C.L.R. (5th) 272, 340 B.C.A.C. 256, 579 W.A.C. 256, 364 D.L.R. (4th) 465, 109 L.C.R. 276, [2013] B.C.J.

No. 1480 (QL), 2013 CarswellBC 2059 (WL Can.), setting aside a decision of Bauman C.J., 2012 BCSC 543 , [2012] B.C.J. No. 735 (QL), 2012 CarswellBC 1054 (WL Can.), which partially upheld an arbitrator’s decision. Appeal allowed in part, Moldaver, Côté, Brown and Rowe JJ. dissenting in part. John J. L. Hunter , Q.C. , Mark S. Oulton and K. Michael Stephens , for the appellant. Karen A. Horsman , Q.C. , Barbara A. Carmichael and Micah Weintraub , for the respondent. The judgment of McLachlin C.J. and Abella, Karakatsanis, Wagner and Gascon JJ. was delivered by Gascon J. — I.

Overview [ 1 ] In British Columbia, the scope of appellate intervention in commercial arbitration is narrow in two key ways. First, there is limited jurisdiction for appellate review of arbitration awards because that jurisdiction is statutorily limited to questions of law ( Arbitration Act , R.S.B.C. 1996, c. 55, s. 31). Second, even where such jurisdiction exists, our Court recently held that a deferential standard of review — reasonableness — “almost always” applies to arbitration awards ( Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633, at paras. 75 , 104 and 106).

Together, limited jurisdiction and deferential review advance the central aims of commercial arbitration: efficiency and finality. [ 2 ] The Province of British Columbia (“BC”) and a forestry company, Teal Cedar Products Ltd. (“Teal Cedar”), were unable to settle how much compensation BC owed to Teal Cedar for reducing the latter’s access to certain improvements on Crown land — such as roads and bridges — which it used to harvest timber. Consequently, their dispute was submitted to arbitration as required by the applicable legislation, the Forestry Revitalization Act , S.B.C. 2003, c. 17 (“ Revitalization Act ”).

Teal Cedar, for the most part, won. Three questions arising from the arbitrator’s award are the subject of this appeal. [ 3 ] First, there is a question of statutory

interpretation: whether the arbitrator erred in selecting a valuation method that was allegedly inconsistent with the

section of the Revitalization Act providing Teal Cedar with compensation. In my opinion, this is a question of law falling within the scope of appellate review permitted under the Arbitration Act . However, the arbitrator, who relied on the plain meaning of the statute prescribing that valuation, reasonably selected a suitable valuation method. Accordingly, I find that his award in this regard cannot be overturned. [ 4 ] Second, there is a question of contractual

interpretation: whether the arbitrator let the factual matrix overwhelm the words of the contract when he interpreted an amended settlement agreement between the parties in light of the factual matrix of their failed negotiations. This question may be formulated in two ways: (1) whether the arbitrator allocated excessive weight to the factual matrix; or (2) whether the arbitrator’s

interpretation of the factual matrix was isolated from the words of the contract. The former formulation is a question of mixed fact and law and thus falls outside the scope of appellate review permitted under the Arbitration Act . The latter formulation, while it raises a question of law, lacks arguable merit in this case because the arbitrator’s

interpretation was clearly anchored in the words of the contract, which he interpreted in light of the factual matrix. Without arguable merit, this formulation also fails to confer appellate review jurisdiction under the Arbitration Act . [ 5 ] Third, there is a question of statutory application: whether the arbitrator erred in denying compensation to Teal Cedar relating to the improvements associated with one of its licences because it never lost access to those improvements, in contrast with the other licences where it lost such access.

Teal Cedar’s licence for that area is referred to in these reasons as the Lillooet Licence. This question involves the application of a specific valuation methodology to the intricate facts before the arbitrator, which qualitatively distinguished the Lillooet Licence from the other licences in dispute. On that basis, I consider that this a question of mixed fact and law outside the scope of appellate review permitted under the Arbitration Act . [ 6 ] As the Court of Appeal below reached the opposite conclusion on the first two questions, I would allow the appeal in part.

Like the application judge, I would confirm the arbitrator’s award on these two questions. However, on the third question, like the Court of Appeal this time, I would restore the arbitrator’s original ruling that BC owed Teal Cedar no compensation relating to improvements for the Lillooet Licence. II. Context

A. The Timber Licences and the Revitalization Act [ 7 ] In British Columbia, forestry companies hold licences which regulate how those companies may harvest Crown timber. The appellant, Teal Cedar, is one such forestry company. Three of Teal Cedar’s licences are relevant to the current dispute, namely:

(1) Forest Licence A19201 in the Fraser Timber Supply Area;

(2) Tree Farm Licence 46 located on Vancouver Island; and

(3) Forest Licence A18699 in the Lillooet Timber Supply Area (“Lillooet Licence”). In general terms, these licences entitle Teal Cedar to harvest timber and to use improvements, such as roads and bridges, to access timber. [ 8 ] In 2003, the respondent, BC, enacted the Revitalization Act . This Act changed forestry companies’ rights under their licences by deleting areas from their land base and reducing the volume of their allowable harvest. In particular, Teal Cedar’s licences were affected as follows: (

a) The Fraser Timber Supply Area licence’s allowable harvest was reduced by 37,500 cubic metres and many of Teal Cedar’s chart areas were removed from the associated land base. (

b) The Vancouver Island licence’s allowable harvest was reduced by 130,637 cubic metres and many of Teal Cedar’s operating areas were removed from the associated land base. (

c) The Lillooet Licence’s allowable harvest was reduced by 48,078 cubic metres, but, unlike the other two licences, this licence never lost any areas in its associated land base. [ 9 ] In response to these changes, the Revitalization Act provided compensation to forestry companies. The amount of that statutory compensation is at the heart of the dispute between BC and Teal Cedar. The relevant compensation provision is s. 6 and, in particular, subs. (4), which provides forestry companies with “compensation from the government in an amount equal to the value of improvements made to Crown land”: Compensation 6

(1) Each holder of an ungrouped licence is entitled to compensation from the government for a reduction under section 2 (1) of the allowable annual cut of the ungrouped licence, in an amount equal to the value, for the unexpired portion of the term of the licence, of the harvesting rights taken by means of the reduction.

(2) Each holder of a timber licence is entitled to compensation from the government in respect of the part, if any, of a reduction in the area of Crown land described in the timber licence that is made under section 2 (2) and that is attributed under section 3 (1) to that licence in an amount equal to the value of the harvesting rights taken by means of the reduction.

(3) Each holder of a licence in a group of licences is entitled to compensation from the government in respect of the part, if any, of a reduction of the allowable annual cut of the licence that is made under section 2 (3) and that is attributed under section 3 (2) to that licence, in an amount equal to the value, for the unexpired portion of the term of the licence, of the harvesting rights taken by means of the reduction.

(4) In addition to the compensation to which the holder of an ungrouped licence, a timber licence or a licence in a group of licences is entitled under subsection (1), (2) or (3), the holder is entitled to compensation from the government in an amount equal to the value of improvements made to Crown land that (

a) are, or have been, authorized by the government, (

b) are not improvements to which

section 174 of the Forest Practices Code of British Columbia Act applies, and (

c) are not, or have not been, paid for by the government under the Forest Act or the former Act as defined in the Forest Act . (4.1) Subsection (4) also applies to a holder of a tree farm licence that is subject to a deletion of Crown land from the tree farm licence area under

section 39.1 of the Forest Act , if the deletion (

a) is in respect of a reduction of allowable annual cut under section 3 (3) of this Act, and

(

b) is made before the date this subsection comes into force.

(5) An entitlement to compensation under this

section vests in the holder to which it applies on March 31, 2003.

(6) A dispute between the minister and the holder of an ungrouped licence, a timber licence or a licence in a group of licences as to the amount of the compensation to which the holder is entitled under this

section must be submitted to arbitration under the Arbitration Act . [ 10 ] Conceptually, s. 6 provides for two types of compensation, namely compensation for: (1) reductions to harvesting rights (“Rights Compensation”, provided for in subss. (1) to (3)); and (2) the value of improvements made to Crown land (“Improvements Compensation”, provided for in s. 6(4) ). [ 11 ] The Revitalization Act permits the Lieutenant Governor in Council to make regulations concerning, among other things, this compensation provision: Regulations 13

(1) The Lieutenant Governor in Council may make regulations referred to in

section 41 of the

Interpretation Act .

(2) Without limiting subsection (1), the Lieutenant Governor in Council may make regulations (

a) defining a word or expression not otherwise defined in this Act, and (

b) for the purposes of

section 6, prescribing respecting value, including but not limited to (

i) determining value and defining the components that comprise value, (ii) prescribing methods of evaluation for use in determining value , (iii) prescribing factors to be taken into account in an evaluation, (iv) defining the role of evaluators in a determination of value and prescribing qualifications for evaluators that are prerequisite to their participation in the determination of value, and (

v) prescribing requirements for the selection of arbitrators. Accordingly, while s. 6(4) of the Revitalization Act provides for Improvements Compensation “in an amount equal to the value of improvements made to Crown land”, s. 13(2)(b)(ii) anticipates regulations “prescribing methods of evaluation for use in determining” that value.

However, neither at the time of the dispute nor at the time of the hearing before this Court had any regulations been passed prescribing those valuation methods. [ 12 ] Lastly, in terms of process, s. 6(6) of the Revitalization Act provides that disputes relating to the amount of compensation BC owes to a forestry company must be submitted to arbitration. Again, the Revitalization Act permits the Lieutenant Governor in Council to make regulations “prescribing requirements for the selection of arbitrators” (s. 13(2)(b)(v)).

As with the anticipated regulations concerning valuation methods, neither at the time of the dispute nor at the time of the hearing before this Court had any regulations been passed prescribing arbitrator selection requirements. Consequently, up until the time of the hearing before this Court, arbitrations regarding compensation under the Revitalization Act were presided over by arbitrators chosen by consent of the parties. There was no list of arbitrators limiting party autonomy in this respect. B.

The Dispute Between Teal Cedar and British Columbia [ 13 ] Teal Cedar suffered compensable losses under the Revitalization Act . It negotiated the value of those losses with BC and the parties reached a partial settlement. They were able to settle the value of the Rights Compensation owed to Teal Cedar, but they were unable to settle the value of the Improvements Compensation.

[ 14 ] To confirm their partial settlement and provide guidelines for their ongoing negotiations, the parties executed a Settlement Framework Agreement. That agreement contained a “No Interest Clause”, which precluded interest payments to Teal Cedar: No interest shall be payable by [BC] in respect to this or any other compensation that may be due to [Teal Cedar] under the [ Revitalization Act ]. (A.R., vol. I, at p. 225) [ 15 ] Negotiations about the value of the Improvements Compensation were ultimately unsuccessful.

Accordingly, 10 months after the Settlement Framework Agreement was first executed, the parties signed an amendment to that agreement (“Amendment”), resulting in a new agreement combining the Settlement Framework Agreement with the Amendment (“Amended Agreement”).

The Amended Agreement provided that the parties were unable to agree on the proper amount of compensation, and thus, would submit the valuation of “compensation” to arbitration (“Arbitration Clause”): [BC] hereby acknowledges that a dispute exists between the Parties and [Teal Cedar] intends to submit the dispute between the Parties as to the amount of the compensation for the Improvements to which it is entitled for arbitration pursuant to Section 6(6) of the [ Revitalization Act ]. (A.R., vol.

I, at p. 228) [ 16 ] As there were no regulations prescribing the requirements for arbitrators, the parties were free to choose who would preside over the arbitration. They ultimately selected Thomas Braidwood, Q.C., a former Justice of the British Columbia Court of Appeal. III. Judicial History [ 17 ] At the initial arbitration, there were two primary questions of

interpretation, which have remained contested up to and including the appeal before this Court. Those questions of

interpretation — one statutory and one contractual — are the following: (

a) What valuation methods for Improvements Compensation are consistent with the Revitalization Act ? (“Valuation Issue”) (

b) Does the “compensation” for improvements submitted to arbitration under the Amended Agreement include interest? (“Interest Issue”) [ 18 ] In addition, another question emerged concerning Teal Cedar’s entitlement to compensation for improvements losses relating to the Lillooet Licence (“Lillooet Issue”). A. Arbitration Award (Thomas Braidwood, Q.C. — April 27, 2011, Amended June 30, 2011) [ 19 ] On the Valuation Issue, the arbitrator had to determine the proper valuation method for Improvements Compensation because no regulations prescribing such a method had been passed.

During a “lengthy and complex hearing” (as noted by the application judge, at para. 7), he was presented with three “generally recognized valuation approaches” (para. 112): (

a) the “Market Value Method”, which the arbitrator rejected because the method is based on determining the market value of the improvements, and BC’s own expert conceded that no such market value exists in respect of improvements on Crown land (para. 113); (

b) the “Income Method”, which the arbitrator similarly rejected because the method is based on determining the income generated by the improvements, and BC’s own expert conceded that no such income exists in respect of improvements on Crown land (para. 113); and (

c) the “Depreciation Replacement Cost Method”, which the arbitrator accepted (paras. 93-94). This method, in simplified terms, valuates Improvements Compensation by estimating the notional cost of rebuilding the improvements from scratch (replacement) to their current degraded condition (depreciation).

The arbitrator accepted this method in part because it was the only valuation methodology presented which determined Improvements Compensation separately from Rights Compensation, in keeping with their separate treatment in the Revitalization Act (para. 94; see Revitalization Act , ss. 6(1) to (3) and 6(4) ). [ 20 ] On the Interest Issue, the arbitrator held that Teal Cedar was entitled to interest on the Improvements Compensation, despite the No Interest Clause, in light of the factual matrix.

Specifically, he found that, at the time of the Settlement Framework Agreement, when the No Interest Clause was drafted, the parties were “hopeful” and in the midst of ongoing negotiations to resolve the Valuation Issue (para. 180).

In contrast, at the time of the Amendment, when the Arbitration Clause was drafted, the parties had just endured 10 months of failed negotiations, and had come to terms with the need to resolve the Valuation Issue — including interest — through arbitration (para. 181). [ 21 ] Lastly, on the Lillooet Issue, the arbitrator ruled that Teal Cedar was not entitled to Improvements Compensation for the Lillooet Licence because it “had not lost any opportunity to use the roads” (paras. 169-70).

Put differently, the arbitrator opined that BC owed no Improvements Compensation to Teal Cedar for the Lillooet Licence since the latter never lost access to any improvements associated with that licence. B. British Columbia Supreme Court ( 2012 BCSC 543 , Bauman C.J.)

[22] The courts reviewing the Arbitration Award had the additional burden of addressing their jurisdiction to review theaward in the first place (“Jurisdiction Issue”). Specifically, the arbitration proceeded under the Arbitration Act, which limits appeals toquestions of law (s. 31). The courts reviewing the Arbitration Award were consequently confronted with the threshold issue of whetherthe Valuation, Interest and Lillooet Issues involved questions of law — the sole type of question over which the courts have appellatereview jurisdiction in commercial arbitration cases. As additional context, this Court’s decision in Sattva — where we clarified thegeneral characterization of contract

interpretation as a question of mixed fact and law — was not released until after the first decision inthis case by the British Columbia Court of Appeal. As a result, the decision of the British Columbia Supreme Court and initial decisionof the British Columbia Court of Appeal were issued without this Court’s guidance in Sattva. [23] On the Jurisdiction Issue, the application judge, Bauman C.J. (now Bauman C.J.B.C.), held that the Valuation Issuesubsumed questions of law and questions of mixed fact and law.

Specifically, the determination of whether the valuation method chosenwas consistent with the Revitalization Act was a matter of “statutory construction” (para. 49 ) and thus a question of law withinhis jurisdiction (para. 57). In contrast, he found that the application of that method to quantify the value of the ImprovementsCompensation involved questions of fact or of mixed fact and law outside his jurisdiction (para. 57).

Similarly, he determined that theInterest Issue involved interpreting the Amended Agreement “in the context of the factual matrix” — a question of mixed fact and lawoutside his jurisdiction (para. 81).

Finally, he held that the Lillooet Issue was a “question of law” because the arbitrator’s chosenmethodology, when applied to the Lillooet Licence (which contains improvements), should have resulted in ImprovementsCompensation for Teal Cedar (para. 84). [24] On the Valuation Issue, Bauman C.J. concluded that the arbitrator’s reliance on the Depreciation Replacement CostMethod was not only proper but correct (para. 57). He noted that the arbitrator, “in the absence of any regulatory guidance”, had beenforced to interpret the plain words of s. 6(4) (para. 46).

Further, he opined that the arbitrator had interpreted s. 6(4) “in a manner open tohim in light of the applicable rules of statutory

interpretation” (para. 50). [25] Lastly, on the Lillooet Issue, Bauman C.J. remitted the issue of Improvements Compensation to the arbitratorbecause of “uncertainty” in his reasons (para. 88). Bauman C.J. felt the arbitrator was “not clear” as to why he denied ImprovementsCompensation for the Lillooet Licence (para. 85).

He reasoned that, since the Lillooet Licence had associated improvements and thearbitrator’s methodology assumed that all improvements would be fully used (para. 86), then Improvements Compensation wasapparently owed in respect of those improvements, just as such compensation was owed in respect of the improvements associated withthe other two licences in dispute. On that basis, the application judge remitted the value of compensation for Teal Cedar’s losses inrespect of the Lillooet Licence to the arbitrator “for reconsideration in light of the valuation methodology he has adopted” (para. 88). C.

Additional Arbitration Award (Thomas Braidwood, Q.C. — July 3, 2012, amended August 17, 2012) [26] In view of Bauman C.J.’s ruling on the Lillooet Issue, the arbitrator issued an additional award “to an amount equalto the value of the improvements” relating to the Lillooet Licence (p. 10). He rendered this decision despite his initial holding that TealCedar’s right to Improvements Compensation was never triggered since it never factually lost its ability to use those improvements. D.

British Columbia Court of Appeal Decision #1 (2013 BCCA 326, 364 D.L.R. (4th) 465) [27] The matter came twice before the British Columbia Court of Appeal. The first time, the Court of Appeal issued twoopinions with diametrically opposed conclusions.

(1) Majority (MacKenzie J.A., Lowry J.A. concurring) [28] The majority allowed BC’s appeal for the most part. On the Jurisdiction Issue, MacKenzie J.A. held that theValuation Issue (statutory

interpretation) and the Interest Issue (contractual

interpretation) were both questions of law and thus fell withinthe scope of appellate review of an arbitration award (paras. 57 and 114). In addition, while not explicit in this respect, the majorityappeared to rule that the Lillooet Issue was within the courts’ reviewing jurisdiction because it related to “whether the arbitrator used thecorrect method of valuation in this case”, a question of law (paras. 55-57). [29] On the Valuation Issue, MacKenzie J.A. found that the arbitrator had erred in law by selecting the DepreciationReplacement Cost Method (paras. 131-33).

Specifically, she noted that this method failed to recognize Teal Cedar’s actual interest in theimprovements (para. 68) by compensating Teal Cedar as if it owned the improvements, whereas Teal Cedar had lost only its right to usethe improvements — which, in reality, were owned by the Crown (paras. 68 and 73). [30] On the Interest Issue, MacKenzie J.A. held that the arbitrator had erred in law by letting the factual matrixoverwhelm the words of the contract (paras. 125 and 129).

Specifically, she concluded that the arbitrator had erred by interpreting theAmended Agreement as including interest in Teal Cedar’s “compensation” submitted to arbitration (para. 136). On my reading,MacKenzie J.A.’s reasoning on this issue (at paras. 105-30) can be interpreted in two ways.

Either she found that the arbitrator allocatedexcessive weight to the factual matrix or that the arbitrator interpreted the factual matrix isolated from the words of the contract. [31] Lastly, on the Lillooet Issue, MacKenzie J.A. concluded that Bauman C.J. had erred in remitting the issue ofcompensation for the Lillooet Licence to the arbitrator. MacKenzie J.A. found that the arbitrator had correctly denied Teal Cedarcompensation for a licence in respect of which it had suffered no actual loss (paras. 78-79).

As a result, she restored the arbitrator’soriginal decision to award Teal Cedar no compensation in respect of the Lillooet Licence (para. 134).

(2) Dissent (Finch C.J.) [32] For his part, Finch C.J., the dissenting judge, agreed with Bauman C.J. and would have dismissed the appeal in itsentirety. On the Valuation Issue, he held that the arbitrator had not erred in law or otherwise (paras. 140-43), and thus he would havemaintained the arbitrator’s selection of the Depreciation Replacement Cost Method. On the Interest Issue, he agreed with Bauman C.J.that the arbitrator’s

interpretation of the Amended Agreement in light of the factual matrix was a question of mixed fact and law outsidethe scope of appellate review of an arbitration award (paras. 144-45). Finally, on the Lillooet Issue, he found that Bauman C.J. had made

“no error of law” in remitting the valuation of compensation for the Lillooet Licence to the arbitrator (paras. 146-48). E. British Columbia Court of Appeal Decision #2 (Remanded Post-Sattva) ( 2015 BCCA 263 , 386 D.L.R. (4th) 40, Lowry, Chiasson and MacKenzie JJ.A.) [ 33 ] In 2013, Teal Cedar sought leave to appeal to the Court from the British Columbia Court of Appeal’s decision. However, in the intervening period, the Court released Sattva in 2014.

Consequently, the Court remanded the case to the British Columbia Court of Appeal for disposition in accordance with Sattva (file No. 35563, October 23, 2014, [2014] S.C.C.

Bull. 1637). [ 34 ] On remand, a unanimous British Columbia Court of Appeal held that MacKenzie J.A.’s pre- Sattva disposition of the appeal (concurred in by Lowry J.A.) was unaltered by Sattva (para. 60). [ 35 ] On the Valuation Issue, the Court of Appeal held that the standard of review was correctness because the arbitrator lacked specialized expertise in forestry statutes (para. 35), the parties were statutorily compelled to resolve their dispute through arbitration (para. 35), and the Valuation Issue was (1) important to compensation statutes generally (para. 35) and (2) a question of law attracting a correctness standard (paras. 36-37).

Further, the Court of Appeal ruled that the arbitrator’s award was, in this respect, both incorrect (para. 37) and unreasonable (para. 38) because it provided a “substantial publicly financed windfall” (para. 38) divorced from Teal Cedar’s “actual financial loss” (para. 39). [ 36 ] On the Interest Issue, the Court of Appeal opined that the arbitrator had made a legal error that gave the courts jurisdiction (para. 46) because he let the factual matrix overwhelm the contract (para. 52), despite its clear wording (para. 59). On my reading, the Court of Appeal’s second decision, like its first, supports two

interpretations of what it means for the factual matrix to “overwhelm” a contract: (1) weighing that matrix excessively; or (2) considering that matrix in isolation from the words of the contract. [ 37 ] The decision of the Court of Appeal on remand was silent in respect of the Lillooet Issue. IV. Issues [ 38 ] In the end, this appeal involves two key

interpretation issues, one statutory and one contractual, namely whether the arbitrator erred in law by: (1) interpreting the Depreciation Replacement Cost Method as being consistent with the Revitalization Act (the Valuation Issue); and (2) interpreting the Amended Agreement as including interest in BC’s Improvements Compensation payment to Teal Cedar (the Interest Issue). This appeal also involves a statutory application issue, namely whether the arbitrator erred in law by denying Improvements Compensation to Teal Cedar when he applied his chosen methodology to the Lillooet Licence (the Lillooet Issue).

Whether the courts have jurisdiction to review these issues, and if so, the applicable standard of review, are also in dispute. V. Analysis [ 39 ] According to the application judge, other than there being a “question” or “point” of law in dispute (see ss. 31(1)(

b) and 31(2) ), the requirements for leave under the Arbitration Act were met in this case on the Valuation Issue (para. 43). Those findings are not challenged before this Court, though I note that the application judge was silent with respect to these requirements on the Interest Issue, which he resolved on the basis of that issue not raising a question of law (para. 81). Similarly, once the statutory preconditions are met, granting leave to appeal an award under the Arbitration Act is a matter of judicial discretion: “. . . the court may grant leave . . .” ( Arbitration Act , s. 31(2)).

The application judge’s exercise of discretion in this regard is also not contested before us. As a result, per Sattva (paras. 38, 102 and 107), a three-step analysis for appellate review of the arbitration award below remains, namely: (

a) Jurisdiction: Whether the appellate court has jurisdiction to review the alleged error. (

b) Standard of review: If so, whether the standard for the review is reasonableness or correctness. (

c) Review: Whether the arbitration award withstands scrutiny under that standard of review (i.e. whether the award is reasonable or correct). [ 40 ] My analysis will proceed on the basis of this logical framework. A. Jurisdiction

(1) Jurisdiction to Review Commercial Arbitration Awards [ 41 ] The scope of jurisdiction in respect of a commercial arbitration award, such as the one at issue, is now well- established in the jurisprudence ( Sattva , at para. 104). Here, as in Sattva , the arbitration was conducted under the Arbitration Act , which limits a reviewing court’s jurisdiction to questions of law: 31

(1) A party to an arbitration, other than an arbitration in respect of a family law dispute, may appeal to the court on any question of law arising out of the award if (

a) all of the parties to the arbitration consent, or (

b) the court grants leave to appeal.

(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. [42] Unlike privative clauses which merely “signa[l]” deference in the context of judicial review of administrativetribunal decisions, statutory limitations on the scope of appellate review of arbitration awards are “absolute” (Sattva, at para. 104).

Inconsequence, a finding that the questions on appeal — the Valuation, Interest and Lillooet Issues — are not questions of law wouldwholly dispose of the issue of the courts’ jurisdiction to review those questions. [43] The process for characterizing a question as one of three principal types — legal, factual, or mixed — is also well-established in the jurisprudence (Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1S.C.R. 748, at para. 35).

In particular, it is not disputed that legal questions are questions “about what the correct legal test is” (Sattva, atpara. 49, quoting Southam, at para. 35); factual questions are questions “about what actually took place between the parties” (Southam,at para. 35; Sattva, at para. 58); and mixed questions are questions about “whether the facts satisfy the legal tests” or, in other words,they involve “applying a legal standard to a set of facts” (Southam, at para. 35; Sattva, at para. 49, quoting Housen v.

Nikolaisen, 2002SCC 33, [2002] 2 S.C.R. 235). [44] That said, while the application of a legal test to a set of facts is a mixed question, if, in the course of thatapplication, the underlying legal test may have been altered, then a legal question arises. For example, if a party alleges that a judge (orarbitrator) while applying a legal test failed to consider a required element of that test, that party alleges that the judge (or arbitrator), ineffect, deleted that element from the test and thus altered the legal test.

As the Court explained in Southam, at para. 39: . . . if a decision-maker says that the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considersonly A, B, and C, then the outcome is as if he or she had applied a law that required consideration of only A, B, and C. If the correct testrequires him or her to consider D as well, then the decision-maker has in effect applied the wrong law, and so has made an error of law.

Such an allegation ultimately challenges whether the judge (or arbitrator) relied on the correct legal test, thus raising a question of law(Sattva, at para. 53; Housen, at paras. 31 and 34-35). Accordingly, such a legal question, if alleged in the context of a dispute under theArbitration Act, and assuming the other jurisdictional requirements of that Act are met, is open to appellate review. These “extricablequestions of law” are better understood as a covert form of legal question — where a judge’s (or arbitrator’

s) legal test is implicit to theirapplication of the test rather than explicit in their description of the test — than as a fourth and distinct category of questions. [45] Courts should, however, exercise caution in identifying extricable questions of law because mixed questions, bydefinition, involve aspects of law. The motivations for counsel to strategically frame a mixed question as a legal question — for example,to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments — aretransparent (Sattva, at para. 54; Southam, at para. 36).

A narrow scope for extricable questions of law is consistent with finality incommercial arbitration and, more broadly, with deference to factual findings.

Courts must be vigilant in distinguishing between a partyalleging that a legal test may have been altered in the course of its application (an extricable question of law; Sattva, at para. 53), and aparty alleging that a legal test, which was unaltered, should have, when applied, resulted in a different outcome (a mixed question). [46] From this standpoint, the characterization of a question on review as a mixed question rather than as a legal questionhas vastly different consequences in appeals from arbitration awards and civil litigation judgments.

The identification of a mixedquestion when appealing an arbitration award defeats a court’s appellate review jurisdiction (Arbitration Act, s. 31; Sattva, at para. 104).In contrast, the identification of a mixed question when appealing a civil litigation judgment merely raises the standard of review(Housen, at para. 36). [47] Given these principles, a question of statutory

interpretation is normally characterized as a legal question. In contrast,identifying a question, broadly, as one of contractual

interpretation does not necessarily resolve the nature of the question at issue.Contractual

interpretation involves factual, legal, and mixed questions. In consequence, characterizing the nature of the specific questionbefore the court requires delicate consideration of the narrow issue actually in dispute. In general, though, as the Court recently explainedin Sattva, contractual

interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles ofcontract law) to contractual facts (the contract itself and its factual matrix) (para. 50).

(2) Jurisdiction in the Instant Case [48] On that basis, jurisdiction in this case can be readily ascertained. First, I will explain the courts’ partial jurisdictionover the Valuation Issue. Second, I will explain the courts’ lack of jurisdiction over the Interest and Lillooet Issues. (

a) Jurisdiction Over the Valuation Issue [49] As held by Bauman C.J. (at para. 57) and Finch C.J., dissenting (at paras. 140 and 143), the Valuation Issue — i.e.the issue of selecting a valuation method that complies with the Revitalization Act — involves a chain of issues, some raising legalquestions and others raising mixed questions. Specifically, two types of questions are engaged by the Valuation Issue: (1) questions

about the broad category of methods that are acceptable under the terms of the Revitalization Act ; and (2) questions about the specific method, within that broad category of acceptable methods, that should ultimately be applied. [ 50 ] The former questions — the methods that are acceptable under the Revitalization Act — are a matter of statutory

interpretation and, accordingly, are questions of law ( Heritage Capital Corp. v. Equitable Trust Co. , 2016 SCC 19 , [2016] 1 S.C.R. 306, at para. 23 , citing Canadian National Railway Co. v. Canada (Attorney General) , 2014 SCC 40 , [2014] 2 S.C.R. 135, at para. 33 ).

As a result, the courts have jurisdiction to review the arbitrator’s resolution of the Valuation Issue in so far as that resolution involves identifying a pool of methodologies consistent with the Revitalization Act . [ 51 ] The latter questions — the preferable method among those that are consistent with the Revitalization Act — are inextricably linked to the evidentiary record at the arbitration hearing, where various experts opined on the virtues of conflicting valuation methodologies. They are mixed questions, if not pure questions of fact.

Therefore, the courts lack jurisdiction to review the arbitrator’s selection of a specific methodology among the pool of methodologies which are consistent with the Revitalization Act . [ 52 ] The majority of the Court of Appeal in its first decision appears to have merged the two types of questions above and held that both were questions of law (para. 57). This is an error because selection among various technical methodologies which all comply with the compensation provision is undeniably linked to the complex evidentiary record before the arbitrator and engages at the very least mixed questions.

The decision of the Court of Appeal on remand does not independently analyze jurisdiction, but it does describe the

interpretation of the compensation provision as a question of law (para. 37). In so far as that decision recognizes that the courts’ jurisdiction is limited to determining methods that are consistent with the compensation provision and does not extend to choosing among those methods, it properly construes the courts’ jurisdiction over the Valuation Issue here. (

b) Jurisdiction Over the Interest Issue [ 53 ] In contrast, as Bauman C.J. and Finch C.J., dissenting, both found, I conclude that the courts have no jurisdiction to review the arbitrator’s resolution of the Interest Issue. [ 54 ] In this case, the arbitrator interpreted the Amended Agreement — including its No Interest Clause, which originated in the Settlement Framework Agreement and was unchanged by the Amendment — in light of the factual matrix.

That was the correct legal test ( Sattva , at para. 50). [ 55 ] Still, BC argues that the arbitrator let the factual matrix overwhelm the words of the contract, which raises an extricable question of law. In my view, this “overwhelming” principle is subject to two formulations, neither of which confers appellate review jurisdiction in this case, albeit for different reasons. [ 56 ] The first formulation of this “overwhelming” principle is that the factual matrix overwhelms the words of a contract when it is weighed excessively.

This formulation fails to confer appellate review jurisdiction here because it is a mixed question. [ 57 ] The goal of contractual

interpretation is ascertaining “the objective intentions of the parties”, an “inherently fact specific” exercise ( Sattva , at para. 55). In interpreting the parties’ intentions, the arbitrator weighed the factual matrix with the words of the Amended Agreement. He was alive to BC’s submission that the No Interest Clause, in isolation, precluded interest payments (paras. 178-79). Indeed, the arbitrator, on a preliminary basis, accepted this submission (para. 179).

But he ultimately held that “[t]he context applying here” revealed a different objective intent, namely to suspend interest only for the duration of negotiations (paras. 180-81). Specifically, the arbitrator assessed the evolving circumstances between the execution of the Settlement Framework Agreement (when the parties were “hopeful” the dispute would be resolved by negotiation and inserted the No Interest Clause in respect of compensation owed) and the execution of the Amended Agreement (when the parties knew negotiations had failed and submitted the value of “compensation” to arbitration).

He held that the parties, by submitting “compensation” to arbitration, had intended compensation, interest included, to be within his jurisdiction (para. 181). [ 58 ] The arbitrator, after a lengthy and complex hearing, was best situated to weigh the factual matrix in his

interpretation of the Amended Agreement.

The fact that he may have placed significant weight on that evidence in interpreting the agreement does not engage a legal question conferring jurisdiction on the courts under the Arbitration Act as it does not alter the underlying test he applied in this case. [ 59 ] In the Court of Appeal’s first decision, the majority at times appears to follow the first formulation of the “overwhelming” principle, and seems to imply that the arbitrator erred in law by placing excessive emphasis on the factual matrix (para. 125), even though that matrix had never been manifested in an “express provision” in the contract (para. 127).

If this is the approach the majority chose, it improperly conflates questions of law (needed at the leave stage for jurisdiction) and errors of law (considered at the merits stage, once jurisdiction has been established). The identification of an alleged legal error should be based on the arbitrator’s application of the wrong test, not on the fact that one would have applied the appropriate legal test differently.

Otherwise, it does not raise a legal question conferring jurisdiction on the courts to review the arbitration award ( Sattva , at paras. 63-66); rather, it skips the jurisdiction stage and immediately proceeds with a review of the arbitrator’s analysis of a mixed question. [ 60 ] Likewise, it is improper to claim that a court should have jurisdiction to review the arbitrator’s contractual analysis merely on the basis that it was allegedly incorrect. Indeed, it would even be improper to claim jurisdiction to review an arbitrator’s analysis merely on the basis that it was unreasonable.

A court looking at the Amended Agreement could have held that the No Interest Clause precluded interest payments and that the Arbitration Clause incorporated that preclusion when it submitted “compensation” (without interest) to arbitration. But to immediately launch into the merits of the arbitrator’s contractual analysis — whether it is incorrect or unreasonable — is to put the cart before the horse. His analysis must first be characterized as raising a legal question.

And only on the basis of that characterization may his analysis then be reviewed. [ 61 ] Here, the relevant legal principle required the arbitrator to interpret the Amended Agreement “in light of the factual matrix” ( Sattva , at para. 50). That is precisely what he did. It cannot be found that the arbitrator changed this legal principle simply because someone else might have applied it differently in this case.

[62] The second formulation of the “overwhelming” principle is that the factual matrix overwhelms the words of acontract when it is interpreted in isolation from the words of the contract, effectively creating a new agreement between the parties. Thisformulation of the “overwhelming” principle raises a legal question, but it lacks arguable merit here.

As a result, it also fails to conferappellate review jurisdiction in this case. [63] In Sattva, this Court accepted that, in rare circumstances, the application of an incorrect principle or the failure toapply a principle could give rise to an extricable question of law (paras. 53 and 62-64; see also Ledcor Construction Ltd. v. NorthbridgeIndemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 21, citing Housen, at para. 36). As the Court recognized in Sattva,the use of the factual matrix in contractual

interpretation is limited by the legal principle that contractual

interpretation must remaingrounded in the text of the contract so as to avoid effectively creating a new agreement between the parties (para. 57; see also HayesForest Services Ltd. v. Weyerhaeuser Co., 2008 BCCA 31, 289 D.L.R. (4th) 230; Glaswegian Enterprises Inc. v. B.C. Tel MobilityCellular Inc. (1997), (BC CA), 101 B.C.A.C. 62; Black Swan Gold Mines Ltd. v. Goldbelt Resources Ltd. (1996), (BC CA), 78 B.C.A.C. 193; G. R. Hall, Canadian Contractual

Interpretation Law (3rd ed. 2016), at p. 33). [64] Whether the arbitrator failed to apply the foregoing principle raises a legal question. That said, merely raising a legalquestion does not exhaust the requirements for jurisdiction under s. 31 of the Arbitration Act. To grant leave on such a question of law,the court must be satisfied that the ground of appeal has “arguable merit” (Sattva, at para. 74; Arbitration Act, s. 31(2)(a)).

In my view, ifthe Court of Appeal on remand had properly conducted a “preliminary examination of the question of law” in light of the reasonablenessstandard to be applied (Sattva, at paras. 74-75 and 106), it would have concluded that there is no arguable merit to this alleged legal error.The arbitrator’s

interpretation was rooted in the words of the contract, not overwhelmed by them. While the arbitrator may have placedsignificant weight on the factual matrix when interpreting the meaning of “compensation”, there is no arguable merit to the claim that heinterpreted that matrix isolated from the contract’s words so as to effectively create a new agreement (Sattva, at para. 57; Hall, at pp. 33-34). [65] Again, contractual

interpretation is a fact-specific exercise. It follows that a question of law premised on the failureto apply the principle that the factual matrix must not be interpreted in isolation from the words of the contract will be very difficult toextricate in practice. On closer examination, it will often amount to nothing more than a complaint about how much weight wasallocated to the factual matrix — in effect, a disagreement about how the decision-maker interpreted the words of a contract in light ofthe factual matrix (Sattva, at paras. 50 and 65).

In short, the supposed question of law will often reveal itself to be a question aboutwhether the decision-maker applied the principle properly — a mixed question — and not about whether the decision-maker applied theproper principle. To extricate a question of law based on the alleged error of having overwhelmed the contract, a reviewing court must besatisfied that the decision-maker interpreted the factual matrix isolated from the words of the contract; an approach which couldeffectively create a new agreement.

There is no arguable merit to the claim that the arbitrator’s analysis here adopted such a flawedapproach. [66] Accordingly, on either formulation of the “overwhelming” principle, the majority of the Court of Appeal (in its firstdecision) and the unanimous Court of Appeal (in its second decision) erred in finding that the courts had jurisdiction to review theInterest Issue. (

c) Jurisdiction Over the Lillooet Issue [67] The courts similarly lack jurisdiction over the Lillooet Issue because it does not raise a question of law. The majorityof the Court of Appeal did not explicitly discuss jurisdiction over the Lillooet Issue, but found that the arbitrator had correctly deniedTeal Cedar compensation for the Lillooet Licence. In contrast, the application judge reasoned that he had jurisdiction over the LillooetIssue.

I disagree with both the application judge’s finding of jurisdiction and his decision to remit the issue to the arbitrator forreconsideration. [68] Bauman C.J. held that the arbitrator’s application of his chosen methodology to the Lillooet Licence raised a purequestion of law (para. 84): Teal argues that as there were improvements associated with the lost volumes in the Lillooet [Timber Supply Area], in light of themethodology adopted by the Arbitrator, it is an error on a pure question of law to deny Teal any compensation for the improvements.

Iagree that this raises a question of law . . . . [69] In my respectful view, this approach improperly conflates jurisdiction with review. The alleged presence of an errorin applying the methodology (review) does not necessarily translate into a question of law (jurisdiction). Rather, the question implicated— whether the arbitrator correctly applied the valuation methodology to the Lillooet Licence — is a mixed question. As such, it isbeyond the scope of appellate review.

A deeper consideration of the arbitrator’s reasoning reveals how the nature of the question raisedhere by the Lillooet Issue is mixed rather than legal. [70] In his initial award, the arbitrator denied Teal Cedar Improvements Compensation for the Lillooet Licence based onits unique factual attributes. He found that Teal Cedar lost no areas associated with that licence, and accordingly, suffered no loss ofvalue in respect of improvements linked to that licence, all of which it was still free to use.

In the arbitrator’s view, this distinguished theLillooet Licence from the other two licences, where BC deleted areas, and therefore denied Teal Cedar access to certain improvementsassociated with those other licences. [71] In effect, the arbitrator reasoned that the Depreciation Replacement Cost Method, when applied, involves apreliminary assessment of some loss of access to improvements, in fact, before determining the value associated with that loss, in law.Consequently, the parties’ dispute in respect of Improvements Compensation for the Lillooet Licence relates to the arbitrator’sapplication of his chosen valuation methodology, a mixed question beyond the courts’ jurisdiction. [72] Indeed, the arbitrator’s basis for denying Improvements Compensation for the Lillooet Licence — that BC nevertook any areas, and thus never took any improvements, relating to that licence — is a factual inquiry best left to the expertise of thearbitrator whose greater proximity to the complex facts in this case leaves him best-situated to adjudicate this matter.

[ 73 ] Having explained why the courts’ jurisdiction is limited to the Valuation Issue, I will now consider the two remaining steps in the framework for review of commercial arbitration awards — the standard of review and the review itself — for that issue alone. B. Standard of Review

(1) Standard of Review for Commercial Arbitration Awards [ 74 ] In an arbitral context like this one, where the decision under review is an award under the Arbitration Act , Sattva establishes that the standard of review is “almost always” reasonableness (para. 75). This preference for a reasonableness standard dovetails with the key policy objectives of commercial arbitration, namely efficiency and finality.

In Sattva , Rothstein J. emphasizes that in “commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard” (para. 106).

He suggests that this may arise only in rare circumstances, such as where a constitutional question or a question of law of central importance to the legal system as a whole and outside the adjudicator’s expertise is at issue (paras. 75 and 106). [ 75 ] It follows that the nature of the question under review — i.e. legal, factual, or mixed — may inform whether one of those circumstances is present, but it is not dispositive, in itself, of the applicable standard of review. For instance, it would be an error to claim that all statutory

interpretation by an arbitrator demands correctness review simply because it engages a legal question. While statutory

interpretation is a legal question ( Heritage , at para. 23, citing Canadian National Railway , at para. 33), the mere presence of a legal question does not, on its own, preclude the application of a reasonableness review in a commercial arbitration context.

Sattva is clear in this regard. [ 76 ] In contrast, where the decision under review is, for example, a civil litigation judgment, the nature of the question is dispositive of the standard of review, with factual and mixed questions being reviewed for palpable and overriding error ( Housen , at paras. 10 and 36 ) and legal questions — including extricable questions of law — being reviewed for correctness ( Housen , at paras. 8 and 36 ). It is therefore critical to bear these distinctions in mind when determining the appropriate standard of review in any given case.

(2) Standard of Review for the Valuation Issue [ 77 ] The decisions below, other than that of the Court of Appeal on remand, largely avoid the question of the standard of review. Bauman C.J. held that the arbitrator had “correctly answered” the Valuation Issue, suggesting a correctness standard of review (para. 57). Similarly, the majority employed correctness language in their reasoning (para. 57). In dissent, Finch C.J. simply noted the absence of errors in Bauman C.J.’s Valuation Issue analysis, making the appropriate standard of review immaterial to his holding (para. 143).

To be fair, these decisions predated Sattva and lacked this Court’s guidance on standard of review in a commercial arbitration context such as this one. [ 78 ] However, on remand, the Court of Appeal had the benefit of Sattva , and its decision was specifically directed toward reconsidering the majority’s decision in light of Sattva . In my view, the Court of Appeal erroneously held that the standard of review should be correctness for the Valuation Issue (paras. 35-37). Its decision appears to suggest that questions of law, such as statutory

interpretation, necessarily attract a correctness standard of review (paras. 36-37). In so far as the Court of Appeal intended to make this suggestion, it is incorrect. As stated before, while the nature of the question (legal, mixed, or fact) is dispositive of the standard of review in the civil litigation context ( Housen , at paras. 8, 10 and 36 ), it is not in the commercial arbitration context ( Sattva , at paras. 75 and 106). [ 79 ] Rather, the standard of review on the legal questions arising from the arbitrator’s analysis of the Valuation Issue is reasonableness.

As discussed, under Sattva , reasonableness review is almost always applied in commercial arbitration (para. 75). That preference is not negated here in light of the nature of the question at issue and the arbitrator’s presumed expertise. [ 80 ] The question at issue — determining the category of appropriate valuation methodologies under a BC forestry statute — is not a previously recognized exceptional question identified in Sattva (paras. 75 and 106). It is clearly not a constitutional question.

Similarly, it is neither of central importance to the legal system as a whole (limited, as it is, to a single province and a single industry) nor is it outside the expertise of the arbitrator (whom the parties chose to adjudicate this very dispute and whose expertise is therefore presumed). Further, the relevant portions of the Dunsmuir analysis (as per Sattva , at para. 106) favour reasonableness review. [ 81 ] For example, specialized expertise supports reasonableness review here.

As discussed, the parties selected the arbitrator to adjudicate this exact issue, hence unambiguously affirming their acceptance of his sufficient expertise. Despite this, in its decision on remand, the Court of Appeal held that the arbitrator’s lack of expertise regarding forestry statutes favoured a correctness standard of review (para. 35).

With respect, that disregards this Court’s guidance in Sattva that arbitrators chosen by the parties “may be presumed . . . chosen either based on their expertise in the area which is the subject of dispute or . . . otherwise qualified in a manner that is acceptable to the parties” (para. 105).

The Court of Appeal’s reasoning also disregards the practical reality that, to weigh an arbitrator’s actual (as opposed to presumed) expertise in every arbitration would require some sort of preliminary assessment of the arbitrator’s level of expertise with a view to establishing the standard of review for every particular hearing — which would be antithetical to the efficiencies meant to be gained through the arbitration process. [ 82 ] Of course, the presumed expertise of a decision-maker remains a “contextual” consideration ( Dunsmuir v. New Brunswick , 2008 SCC 9 , [2008] 1 S.C.R. 190, at para. 64 ).

In Sattva , the arbitration was voluntary (para. 9), whereas arbitration in this case was statutorily imposed ( Revitalization Act , s. 6(6)), a point specifically made by the Court of Appeal in its decision on remand (para. 35). But that distinction does not amount to much. The parties in this case still had complete control over the choice of their arbitrator; despite anticipated regulations “prescribing requirements for the selection of arbitrators” ( Revitalization Act , s. 13(2)(b)(v)), no such regulations had been enacted at the time the arbitration arose.

In addition, as noted, the arbitrator here considered the very issue he was mandated to address by both statute and party consent. If an issue were to arise in the course of an arbitration that was beyond the foreseeable scope of an arbitrator’s mandate, that could well undermine an arbitrator’s presumed expertise. But that is simply not the case before us.

[ 83 ] In closing on this point, I observe that the applicability of a reasonableness standard of review in this case is hardly disputable. We are, after all, in a commercial arbitration context, in which, from a policy perspective, the deliberate aim is to maximize efficiency and finality. Further, the arbitrator was specifically assigned jurisdiction over the discrete issue of valuation by the Revitalization Act ( s. 6(6) ), an issue in which he, having been chosen by consent of the parties, is expected to have specialized expertise. This merits deferential review. C.

Review of the Valuation Issue [ 84 ] Turning to the review step of the analysis, like the application judge and the dissent at the Court of Appeal, I find that the arbitrator’s determination that the Depreciation Replacement Cost Method was consistent with the Revitalization Act was reasonable. This decision fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, tran

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