Hayes Forest Services Limited Petitioner v. International Forest Products Limited, 2003 BCSC 500

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Hayes Forest Services Limited v. International Forest Products Limited, 2003 BCSC 500 Date: 20030402 Docket: L023745 Registry: Vancouver Between: Hayes Forest Services Limited Petitioner And International Forest Products Limited Respondent Before: The Honourable Mr. Justice Harvey Reasons for Judgment (In Chambers) Counsel for the Petitioner: C. Willms B. Greenberg Counsel for the Respondent: E. Harris, Q.C. J. Lamont Date and Place of Hearing: February 25, 2003 Vancouver , B.C. [ 1 ] The petitioner, Hayes Forest Services Ltd., seeks leave from the court to appeal a portion of an arbitrator’s award pursuant to s. 31(1) (

b) of the Commercial Arbitration Act , R.S.B.C. 1996, c. 55 . FACTS [ 2 ] The respondent, International Forest Products Ltd. (“Interfor”), is a British Columbia forest company with an exclusive licence to harvest logs in Tree Farm Licence 10 (“TFL 10”) on the mainland coast. The petitioner is a logging contractor providing services to Interfor in TFL 10. [ 3 ] Hayes and Interfor are the successor parties to a replaceable logging contract dated January 1, 1990 for the provision of logging and road building services in TFL 10. The contract is replaceable pursuant to s. 12(

a) of the Timber Harvesting Contract and Subcontract Regulation , B.C. Reg. 96/22 (the “ Regulation ”). The contract was first replaced sometime in 1993, but that version of the contract expired December 31, 1998. The parties have been negotiating the terms of a replacement contract to govern their activities from January 1, 1999 to December 31, 2003, but have been unable to come to an agreement.

Those terms are now the subject of separate proceedings under the Regulation . [ 4 ] Under the January 1, 1990 contract, the annual minimum volume Hayes was entitled to log in TFL 10 was set at 150,000 m 3 plus/minus 50%. This was later reduced by agreement of the parties to 48,903 m 3 plus/minus 50%. [ 5 ] A dispute arose, however, as to the amount of work Hayes was entitled to under the contract.

In a decision dated September 15, 1998, Arbitrator Josiah Wood, Q.C. applied the provisions in s. 18(1),(2) and (7) of the Regulation, which had come into force in April 1996, to conclude that Hayes was entitled to harvest 100% of the total amount of timber processed by Interfor in TFL 10 in any given

year of the existing contract. [6] Interfor did not allocate any work in TFL 10 to Hayes in 1998, which resulted in Hayes bringing a claim for damages toarbitration. In his decision dated March 25, 1999, Arbitrator George Macintosh, Q.C. determined that under the contract, Interfor was obliged to permit Hayes to log a minimum of 24,452 m3 in 1998 (48,903 m3 minus 50%). He awarded damages to Hayes of $451,535.00for the 1998 shortfall in a subsequent decision dated August 25, 2000. [7] In 2001, the allowable annual cut (AAC) for TFL 10 was set by the province at 48,903 m3 plus/minus 50%.

Interfor processed only 14,859 m3 in that year; 100% of that work was allocated to Hayes. Hayes disputed the amount of work it received in TFL 10, claiming it was entitled to log 24,452 m3 in 2001 as held by Arbitrator Macintosh; it also disputed the rates paid by Interfor for timberharvesting in 2000 and 2001. The dispute was brought before Arbitrator Murray Clemens Q.C.; in his decision of November 14, 2002,Arbitrator Clemens fixed logging rates for 2000 and 2001 but dismissed Hayes’ claim for damages arising from the alleged shortfall. Itis the latter finding that Hayes seeks leave to appeal.

POSITIONS OF THE PARTIES [8] The petitioner submits that Arbitrator Clemens erred in law in interpreting the contract and the Regulation when he concluded there was no term in the current contract that obliged Interfor to provide Hayes with a minimum annual volume of 24,452 m3, as hadbeen previously found by Arbitrator Macintosh.

He also erred, Hayes submits, by failing to consider the alternative submission that, inthe absence of an expressly agreed annual volume, the minimum annual volume in any particular year is 50% of the AAC granted toInterfor by the province under the Forest Act, R.S.B.C. 1996, c. 157. [9] The respondent opposes the application on the bases that it raises no error of law, or alternatively, if an error of law has beenraised, the court should refuse to exercise its discretion to grant leave because there is insufficient merit to the appeal. THE LAW [10]

Section 31 of the Commercial Arbitration Act, supra, sets out the conditions under which a party to an arbitration can appeal aquestion of law arising out of an arbitral decision: 31

(1) A party to an arbitration 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. If one or more of these conditions is met, the court must then decide whether to exercise its discretion to grant leave: Student Assn. ofthe British Columbia Institute of Technology v. British Columbia Institute of Technology (2000), 2000 BCCA 496 , 192D.L.R. (4th) 122 (B.C.C.A.) [11] The application appears to raise three questions of law that the petitioner seeks to appeal.

The first is whether Arbitrator Clemens was required by the doctrine of res judicata to apply the finding of Arbitrator Macintosh that a minimum annual volume of 24,452 m3 was a term of the contract between the parties. [12] For the doctrine of res judicata, or issue estoppel, to apply, the later decision must consider the same question ruled upon in theearlier proceedings: Danyluk v. Ainsworth Technologies Inc., [2001] 2 S.C.R. 460, 2001 SCC 44.

I agree with the respondent that thedoctrine of issue estoppel does not arise in this case because the two decisions dealt with different contracts: Arbitrator Clemensconsidered the 1999-2003 contract, while Arbitrator Macintosh examined the 1993-1998 contract. Leave to appeal cannot be granted onthe basis of issue estoppel because it has no application in this case. [13] The second question of law is the proper

interpretation of s. 13 of the Regulation and its effect on the construction of replaceablelogging contracts. Section 13(1)(b)(iv) of the Regulation requires that replacement contracts “be on substantially the same terms andconditions as the contract it replaces”.

To be on substantially the same terms and conditions, the replacement contract must provide,inter alia, “for a specified amount of work that is the same as or greater than the amount of work specified in the one that it replaces”: s.1(7)(c). [14] This language seems to suggest that the amount of work in the 1999-2003 replacement contract must be specified as it had been in the previous contract, namely as a minimum annual volume of 24,452 m3.

However, s. 18(1), enacted in April 1996, states, “[e]xcept asotherwise provided in this Part,” the amount of work in a replaceable contract pertaining to a licence in a coastal area must be specified asa percentage of the total amount of timber processed by the licence holder under the licence in that year. To that end, s. 48 of theRegulation mandates that all replaceable contracts must contain the following provision found in

Schedule 8 of the Regulation, or aprovision agreed to by the parties that is consistent in all material ways:

Volume Dependent Contract 1 Subject to the regulation, and subject to a provision of this contract permitted or required by the regulation, in each year of the term of this contract the licence holder will allocate to the contractor and the contractor will perform the timber harvesting services of the type provided for in this contract that are required to process ...... percent (.....%) of the total amount of timber processed by the licence holder under the licence in that year.

The Regulation allows for the amount of work to be specified in a manner other than as a percentage, but only if the contractor and licence holder agree to that effect on or after April 1, 1996 : s. 18(8). [ 15 ] Arbitrator Clemens determined that “s. 13(1)(b)(iv) must be read subject to s. 18(1) which requires the amount of work to be expressed as a percentage.”: para. 90.

As the parties had not agreed, on or after April 1, 1996, to specify the amount of work as a minimum annual volume, he found at para. 91 that “it cannot be said that Interfor has breached the agreement by allocating only 14,859 m 3 in 2001.” The question of law to be considered, therefore, is whether Arbitrator Clemens erred in his

interpretation of the Regulation when he found that s. 13(1)(b)(iv) must be read subject to s. 18(1). [ 16 ] The respondent concedes that if a question of law can be established, which I find that it has, the first two criteria for granting leave under s. 31(2)(a), as set out in Student Assn. of B.C.I.T., supra, can be satisfied: the petitioner’s claim for the alleged shortfall is for a substantial amount ($358,245), and the outcome of the question goes to the heart of the arbitral decision. I would add that this question of law is also capable of forming the basis of an appeal under s. 31(2)(b), as the

interpretation of s. 13 of the Regulation is a matter of importance to both contractors and licence holders governed by replaceable logging contracts. [ 17 ] The main issue then is whether the court should exercise its discretion to grant leave to appeal. The factors to be considered by the court in its exercise of discretion were described by Madam Justice Saunders in Student Assn. of B.C.I.T., supra at para. 31: I do not consider that the application of any formula will determine whether a chambers judge should exercise discretion and grant leave to appeal.

The discretion is to be exercised judicially, that is, trial judges will take into consideration those matters with which they are well familiar.

Those matters include the apparent merits of the appeal, the degree of significance of the issue to the parties, to third parties and to the community at large, the circumstances surrounding the dispute and adjudication including the urgency of a final answer, other temporal considerations including the opportunity for either party to address the result through other avenues, the conduct of the parties, and the stage of the process at which the appealed decision was made ….

Undoubtedly included in this assessment will be respect for the forum of arbitration, chosen by the parties as their means of resolving disputes, and recognition that arbitration is often intended to provide a speedy and final dispute mechanism, tailor made for the issues which may face the parties to the arbitration agreement. [ 18 ] I find that the factors in this case militate against granting leave on this question of law. While the issue is obviously of significance to the parties, the merits of the appeal are not sufficient to justify granting leave.

To find that an annual minimum volume of work must flow through to the replacement contract as a result of s.13 would be inconsistent with the mandatory requirements of ss. 18(1) and 48 of the Regulation , and could not have been intended by the drafters. Such a finding would also be inconsistent with the requirement in s. 18(8) that the parties make an agreement “on or after April 1, 1996” if they wish to specify the amount of work in a manner other than as a percentage. Finally, the description of these contracts in

Schedule 8 as “Volume Dependent” also demonstrates the intention of the drafters that the amount of work that a contractor is entitled to perform under these contracts will be dependent upon the volume of work the licence holder performs in any given year. [ 19 ] I am also persuaded to refuse to grant leave by the fact that the terms of this contract may be finalized in any event in the on-going mediation proceedings between the parties.

There is also a need for finality on this issue as the current contract expires on December 31, 2003 and Interfor is obliged to offer Hayes a replacement contract on the same terms at least three months in advance of this date. Having weighed all the factors, leave to appeal on this question of law is denied. [ 20 ] The third question of law raised in the application is whether Arbitrator Clemens erred by not considering the petitioner’s alternate submission that, in the absence of an expressly agreed annual volume, the minimum annual volume in any given year is 50% of the AAC.

The respondent submits that Hayes cannot raise this question for appeal because it did not make the argument before Arbitrator Clemens.

Alternatively, if the argument was made, which it denies, the respondent submits the failure to consider it would constitute an arbitral error under s. 30 of the Commercial Arbitration Act , supra , not an error of law under s. 31. [ 21 ] It is not necessary for me to determine if the argument was made at the arbitration, and if so, whether the failure to consider it was an arbitral error or an error of law, because in any event, the submission is of insufficient merit to justify the exercise of discretion to grant leave.

I agree with Arbitrator Macintosh’s decision of March 25, 1999 that any rights and obligations arising from cut control requirements under the Forest Act exist between the Ministry and Interfor alone, and do not give rise to corresponding enforceable rights for Hayes. [ 22 ] It should also be pointed out that if the argument was made, a remedy was available to Hayes under s. 27(6) of the Commercial Arbitration Act , supra to apply to the arbitrator for an additional award with respect to claims presented but omitted from the award, but Hayes chose not to pursue that remedy. [ 23 ] To summarize, while the application raises a question of law that satisfies the conditions of s. 31(2)(

a) and (b), the merits of the appeal are insufficient to justify the exercise of discretion to grant leave to appeal. [ 24 ] The application is dismissed with costs. “R.B. Harvey, J.” The Honourable Mr. Justice R.B. Harvey