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Digest of the Week — Jurisdiction of Arbitrators

2013 CarswellBC 2954 |
Teal Cedar Products Ltd. v. British Columbia (Ministry of Forests) |
Supreme Court of Canada


Real property | Expropriation | Valuation | Interest on award | Jurisdiction to award

Alternative dispute resolution | Arbitration awards | Interest on award


Compound interest — Forestry company, T, had annual allowable cut reduced by province in 1999 and commenced legal action against province for partial expropriation — Protected Areas Forests Compensation Act (PAFCA) required T to seek compensation under Forest Act, which in turn required T’s dispute with province to be subject to arbitration under Commercial Arbitration Act (CAA) — Arbitrator awarded T $6,350,000, including interest at prime rate compounded annually from 1999, resulting in interest of over $2.2 million — Province’s appeal of interest award was dismissed, and province was denied leave to appeal that dismissal — Province appealed — Appeal allowed — Compound interest was prohibited by Court Order Interest Act (COIA) which was incorporated into CAA by s. 28 which states “a sum directed to be paid by an award is a pecuniary judgment of the court” — Effect of this deeming rule was that arbitrator was required to apply provisions of COIA which stated that pecuniary judgments were to have simple and not compound interest added to them — Arbitrator could not include compound interest as part of award rather than on top of award as this would undermine COIA provisions prohibiting interest upon interest — Interest in award would create double recovery since s. 28 of CAA would then operate to add interest on top of award that already included interest — While s. 28 of CAA did not expressly deem arbitrator to be “a court”, this was necessary implication of stating that sum directed to be paid by award was “a pecuniary judgment of the court” — There was legislative intention, through interaction of PAFCA, Forest Act and CAA, not to provide for compound interest as aspect of full compensation — Arbitrator’s award of compound interest was set aside, and simple interest was substituted.



T, a forestry company, held a licence to harvest timber in British Columbia. The province reduced T’s allowable annual cut in 1999, and in 2001 T began legal action against the province claiming compensation for partial expropriation. In 2002 the province enacted the Protected Areas Forests Compensation Act (PAFCA), which specified that reductions in allowable annual cuts caused by creation of a provincial park did not constitute an expropriation within the meaning of the Expropriation Act. PAFCA required T to seek seek compensation under the Forest Act, which required T’s dispute with the province to be subject to arbitration under the Commercial Arbitration Act (CAA). The arbitrator awarded T $6,350,000 plus legal costs, and that award included interest at the prime rate compounded annually from the date in 1999 when the cut was reduced, amounting to over $2.2 million in interest.
The province challenged the arbitrator’s decision to award compound interest rather than simple interest, arguing that compound interest was prohibited under the Court Order Interest Act (COIA), which is incorporated into the CAA by s. 28. The award of compound interest was upheld at the Supreme Court of British Columbia, and the Court of Appeal denied the province leave to appeal. The province appealed.


Held: The appeal was allowed.


Per Rothstein J. (LeBel, Fish, Cromwell, Moldaver, Karakatsanis and Wagner JJ. concurring): Compound interest is prohibited by the COIA, and the provisions on interest are mandatory. Compound interest is a more accurate way of compensating parties for the time-value of money, however, the legislature had not amended the COIA to remove the prohibition of interest on interest. While the COIA does not apply directly to arbitrations under the CAA, the CAA states that the COIA applies by providing in s. 28 that “a sum directed to be paid by an award is a pecuniary judgment of the court”. The effect of this deeming rule is that an arbitrator must apply the provisions of the COIA, and since pecuniary court judgments have simple, not compound, interest added to them, the ordinary meaning of s. 28 of the CAA is that simple and not compound interest is to be added to the sum directed to be paid by an award.


Relying on case law, T argued that it is possible for arbitrators to include compound interest as part of the award, rather than on top of the award. However, this would allow courts to include interest, including compound interest, in pecuniary judgments, and this would undermine the statutory purpose of the COIA prejudgment interest provisions since it would permit the awarding of compound interest despite s. 2(c) prohibiting interest on interest. If interest was included in the sum directed to be paid by an award, there would be double recovery with respect to interest since s. 28 of the CAA would then operate to add interest on top of an award that already included interest. T’s submissions regarding double recovery were untenable, since s. 28 could not be read as being limited only to postjudgment interest, and T’s proposed interpretation resulted in rendering s. 28 meaningless. Statutory interpretation principles stated that legislative provisions were not to be interpreted to be “mere surplusage”.


While T was correct that s. 28 of the CAA does not expressly deem an arbitrator to be a court, this was a necessary implication of stating that a sum directed to be paid by an award is “a pecuniary judgment of the court”. Apart from s. 28, arbitrators operating under the CAA are not permitted to award interest. If s. 28 required a court to make an award of interest, any efficiencies obtained as part of the arbitration process would be undermined as the parties would always need to involve the courts for interest. Furthermore, this argument would make an enforcement proceeding under s. 29 a prerequisite for receiving interest because a party would have to go to court to seek judgment for the award of interest. This would render s. 28 surplusage. As a result, T’s submission that interest can be included in an arbitration award under the CAA was rejected.


Section 7(1) of the PAFCA limited T’s compensation in this case to an amount of compensation determined under ss. 60 and 60(7) of the Forest Act required that T’s compensation be determined under the CAA. Since s. 28 of the CAA limits the interest awarded on a sum directed to be paid by an award under that Act to simple interest, the interaction of these three statutes reflected a legislative intention not to provide for compound interest as an aspect of full compensation.
The arbitrator’s award of compound interest was set aside and an award of simple interest was substituted.


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