Author: Osler Hoskin & Harcourt LLP
Canada/ February 20 2024
The Court of Appeal for British Columbia’s decision in Bollhorn v. Lakehouse Custom Homes Ltd., 2023 BCCA 444, highlights an apparent “lacuna”, or gap, in the domestic arbitration scheme arising out of the combined effect of the Arbitration Act and the Vancouver International Arbitration Centre’s (VanIAC) Domestic Rules for Arbitration (the Rules). Mr. Bollhorn applied for leave to appeal under the appeal mechanism in the Act, arguing that the arbitrator erred in law when he dismissed his arbitration claim on the basis of res judicata — that his case had already been heard and resolved. In response, Lakehouse Custom Homes Ltd. argued that even if Mr. Bollhorn was correct, the Court could not hear the appeal: the Rules prohibit parties from appealing an arbitrator’s decision for disputes not exceeding $250,000.
If both parties are correct, the effect may be a gap in justice for Mr. Bollhorn: his claim will not have been heard on its merits, and no other forum may be available. In the result, the judge in chambers referred Mr. Bollhorn’s application to a division of the court.
Background
The parties entered into a contract in 2021 for the construction and purchase of a home. The contract included an arbitration clause.
In early 2022, Lakehouse refused to complete the contract, following several orders directing changes in the contract’s specifications, and disagreement on the amount payable to Lakehouse for those changes. Mr. Bollhorn brought an action in the British Columbia Supreme Court for specific performance, and the Court ruled in his favour.
Mr. Bollhorn subsequently identified deficiencies in the construction, many of which had been anticipated at the court hearing. When Lakehouse did not fix the deficiencies, Mr. Bollhorn filed a Notice to Arbitrate with the VanIAC.
On July 30, 2023, the arbitrator dismissed the arbitration proceeding on the basis that it was barred by the doctrine of res judicata. He indicated that the claims that Mr. Bollhorn now pursued in arbitration had previously been put forward by Mr. Bollhorn in the notice of civil claim in the 2022 British Columbia Supreme Court proceeding.
The Court of Appeal’s decision
Mr. Bollhorn sought leave to appeal to the Court of Appeal from the arbitrator’s decision on the basis that the arbitrator erred in law in concluding that the issues submitted to arbitration were res judicata, including because his notice of civil claim did not advance a claim regarding the construction deficiencies and the contract assigned disputes regarding deficiencies exclusively to arbitration. Lakehouse asserted that the arbitration scheme did not allow for an appeal in the circumstances.
Justice Saunders reviewed the arbitration scheme and found that the present case highlighted a gap. The new Act came into force on September 1, 2020. Section 4(a) of the Act generally restricts the court’s involvement in arbitration proceedings in B.C. However, pursuant to s. 59(3), unless otherwise agreed to in an arbitration agreement, a party to arbitration may seek leave to appeal to the Court of Appeal on any question of law arising out of an arbitral award.
The regulation under the Act appointed VanIAC as the designated appointing authority and VanIAC promulgated its own Rules, which are divided into four parts. Part B — “Expedited Procedures” — applies to claims not exceeding $250,000. Mr. Bollhorn’s claim has a value of approximately $95,000.
Under Part B, R. 27(a) stipulates that there shall be no appeal on questions of law from an award issued under the Expedited Procedures, unless otherwise consented to by both parties.
Justice Saunders indicated that the parties had revealed a lacuna in the domestic arbitration scheme: if Mr. Bollhorn was correct that the arbitrator’s application of res judicata was an error of law and if Lakehouse was correct that the arbitrator’s decision could not be appealed, then Mr. Bollhorn’s claim of deficiencies under the contract would not have been heard on its merits. Moreover, depending on whether the arbitrator’s decision constituted an “award”, no other forum may be available to Mr. Bollhorn, as the contract assigns disputes regarding deficiencies exclusively to arbitration.
In the result, Justice Saunders referred the application for leave to appeal to a division of the court.
Takeaways
The eventual decision of the division may provide greater clarity on the mechanics of B.C.’s domestic arbitration scheme, and the boundaries and repercussions of this apparent gap. While we wait for the division to weigh in, we are left with unresolved questions as to how the current scheme impacts the right of contractual parties to resolution of a claim on its merits.
