CPD Bootcamp - Corporate and Litigation Nov 2014
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Transcript of CPD Bootcamp - Corporate and Litigation Nov 2014
Shareholder Meeting
2
Types of shareholder meetings
Who can call a shareholder meeting?
Deadline to call an annual meeting
Sending notice
Annual meeting matters
Notice of meeting – contents, delivery and waiver
Preparing for a shareholder meeting
Who can attend a shareholder meeting?
Conducting a shareholder meeting – common questions
Types of shareholder meetings
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1. Annual meetings – required by corporate statute
2. Special meetings – for transacting special business
3. Class or series meetings – restricted to holders of a class or
series of shares
Who can call a shareholder meeting?
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1. Directors
2. Shareholders (Business Corporations Act Section 167)
Shareholders must hold at least 5% of issued shares of the
company that carry the right to vote at general meetings
3. Court (Business Corporations Act Section 186)
Deadline to call an annual meeting
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Companies are required to hold shareholder meeting annually,
and not more than 15 months after the preceding annual meeting.
TSX issuer: Within 6 months from fiscal year end (TSX Company
Manual Section 464).
Extension of deadline:
Submit letter request to Corporate Registry;
TSX issuers should also submit TSX Form 9.
Private companies have the option to transact the required
businesses by unanimous written shareholder resolutions.
Sending notice
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PRIVATE COMPANY PUBLIC COMPANY
Company’s articles
(standard form: no less than 10 days
before the meeting date)
No fewer than 30 days and no more
than 60 days before the meeting date
(National Instrument 54-101)
– can be abridged
No more than 2 months before the
meeting date (Business Corporations
Act Section 169)
Annual meeting matters
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1. Present the minutes of the preceding meeting;
2. Present the company’s annual financial statements and auditor’s
report;
3. Elect directors;
4. Appoint auditors and fix their remuneration or authorize the
Board to set their remuneration;
5. Transact any other special matters as required.
Notice of meeting
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CONTENTS: Date, time, location of the meeting and description of
businesses in sufficient detail to permit shareholder to form a
reasoned judgement
DELIVERY: to latest addresses of shareholders on the register
PUBLIC COMPANIES: can opt to use NOTICE-AND-ACCESS
ATTENDANCE of a person at a meeting of shareholders is a
waiver of entitlement to notice of the meeting
Preparing for a shareholder meeting
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Obtain meeting agenda from Board
Draft notice of meeting
Draft meeting circular
Draft and send related directors’ and officers’ questionnaires
Prepare proxy forms
Compile list of shareholders entitled to vote at the meeting
Prepare chair’s script
Make available for viewing at the annual meeting venue:
annual comparative financial statements
minutes of previous shareholder meeting
Who can attend a shareholder meeting?
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Entitled to attend:
1. Registered shareholders and proxyholders
2. Directors and nominees
3. Auditors (Business Corporations Act Section 219)
Allowed to attend in most cases:
1. Officers
2. Legal counsel
Conducting a meeting – common questions
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Q: Can a shareholder dial into a meeting?
A: Refer to company’s articles. No general restrictions in the BCA.
Company must provide dial-in information to all shareholders in advance of
the meeting.
Q: Do motions need to be seconded?
A: No, unless required by the company’s articles.
Q: What if shareholder meeting material included a resolution that will not
be motioned at the meeting?
A: The meeting chairperson can announce that the business will not be dealt
with or that the Board has withdrawn the proposal.
Q: Can a shareholder make a motion from the floor?
A: Yes – any person entitled to vote can make a motion.
Questions?
Contact:
Jessica Yee
T: (604) 443-7136
Emily Yuen
T: (604) 648-6556
© 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking,
action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential
information may be relevant. Please see dentons.com for Legal Notices
Introductions - Bylaws
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• In the US, companies are using bylaws in respect of shareholder
disputes and litigation to save time and money.
• Advance notice bylaws are one example of a recent Delaware bylaw
development which has been adopted in Canada.
• Additional areas where bylaws are developing include forum selection for
litigation, fee shifting bylaws for litigation costs and mandatory arbitration.
Agenda
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1. Bylaws, Articles and Board Policies
2. Advance Notice Bylaws
3. US Developments
Forum selection, fee shifting and arbitration bylaws
Bylaws, Articles and Board Policies
What’s the Difference?
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Generally in Canada, two types of corporate statutes (and corporations).
1. Canada Business Corporations Act (CBCA)
• Provides a complete code which divides powers between directors and
shareholders.
• Known as statutory division of powers model. Origin in the United States.
Status and remedy oriented.
• Business Corporations Act in Alberta and in Ontario based on CBCA model.
2. British Columbia Business Corporations Act (BC Act)
• Contractarian model, but adopts useful CBCA features. Based on old English
company legislation. Contract and rights oriented. More flexibility.
Constating Documents
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BC Act Notice of Articles Articles
CBCA Articles Bylaws
• BC Notice of Articles are filed with the BC Registrar of Companies and
sets out certain prescribed information such as corporate name,
registered and records offices, director information, and authorized share
capital.
• CBCA Articles are filed with Corporations Canada and set out certain
information such as corporate name, registered office, restrictions on
business (if any), restrictions on share transfers (if any), and rights and
restrictions that apply to shares classes
• Generally, Articles may be amended with a special shareholders’ resolution
(typically 2/3 vote).
Articles under the BC Act
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• The BC Act permits flexibility under a company’s constating documents.
• Articles of the company are binding upon and form a contract between
the company and its shareholders and so can be modified extensively.
• Typically addresses rules for conduct of the company, restrictions (if any) on
the businesses that may be carried on, the powers that the company may
exercise, and the special rights or restrictions attached to shares.
• Amended as specified by the act or articles. Otherwise, amended with a
special shareholders’ resolution - typically 2/3 vote, but can be up to 3/4 vote.
CBCA Bylaws
What are they and how are they adopted/amended?
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• By-laws contain the internal governance rules and provide a guide for the
conduct and affairs of the corporation. Bylaws must be in line with the
act and articles to be valid.
• Directors may pass bylaws by a resolution (CBCA Section 103).
• Bylaw is valid when passed by directors until the next general meeting (AGM).
• Bylaws must be put to shareholders at the next AGM, where shareholders by
ordinary resolution may confirm, amend or reject the bylaw.
• Bylaws may be created by shareholders through a shareholder proposal.
CBCA - Articles and Bylaws
What is their impact on shareholders?
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• Shareholders can go to court to enforce articles and bylaws.
• Articles and bylaws may bind shareholders in a contractual manner.
• Bylaws only bind a shareholder acting in the capacity of a shareholder.
• Shareholders may unanimously agree to ignore the application of a bylaw.
• Unanimous shareholder agreements allow shareholders to create
contractual rights or obligations among the shareholders.
Board Policy
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• Directors can use board policies to set out internal governance rules,
provided such policies are not contrary to the articles or the act.
• Most useful for matters impacting the company, as opposed to the
shareholders generally.
• Particularly useful in British Columbia, since articles are not effective until
they receive shareholder approval by a special resolution.
• Board policies have been used:
• To address TSX requirements that each director be elected by a majority of the
votes cast.
• To implement advance notice bylaws.
Advance Notice Bylaws
What are they?
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• Wide spread use in Canada following increase in proxy fights in 2012.
• Advance Notice Bylaws require shareholders to provide the corporation
with prior notice of their intent to nominate directors.
• Purpose is to prevent a dissident shareholder from lying in the weeds
and nominating directors at or immediately prior to a meeting, when all
shareholders would not have a chance to consider such nomination.
• Advantages: Facilitates shareholder democracy by allowing
shareholders to have notice of nominations and facilitating an orderly
meeting.
• Disadvantages: May be used as a tool to entrench management and
restricts shareholders from their fundamental right to nominate directors.
Advance Notice Bylaws
How do they work?
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• Generally require certain prescribed information, such as:
• the name, age, address, occupation and share ownership of the proposed
director; and
• information about the proposed director and nominating shareholder that would
be required to be disclosed in a dissident’s proxy circular.
• Set time lines generally as follows:
• Notice required 30 to 65 days or longer in advance of the annual general
meeting (AGM).
• For an AGM to be held within 50 days of its first announcement, then notice
required within 10 days of the first announcement of the AGM.
• For a special meeting (that is not an AGM), notice required 15 days from its
announcement.
Advance Notice Bylaws
Corporate Law Considerations
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• Adoption
• Adopted as a bylaw for CBCA, OBCA or ABCA corporations.
• Adopted as a board policy, or as an amendment to articles, for a BC Act
corporation.
• Treatment by the Courts
• Courts have upheld advance notice bylaws when implemented for the benefit of
shareholders. For example, the company delayed a meeting so shareholders
would have time to consider all nominations. (Mundoro Capital case)
• Courts have interpreted the bylaws purposively to allow nominations, rather
than restrictively to prevent nominations. (Orange Capital case)
“Advance notice policies are intended to be a shield to protect shareholders... as
well as management, from ambush; they are not intended to be a sword in the
hands of management to exclude nominations given on ample notice ....”
Advance Notice Bylaws
Responses to Advance Notice Bylaws
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• Proxy firms: Glass Lewis/Institutional Shareholder Services
• Recommend shareholders withhold votes for directors who unilaterally adopt
advance notice bylaws without a shareholder vote. (ISS)
• Adopt a case by case approach to such policies (ISS).
• ISS - No maximum notice period. Glass Lewis – maximum of 70 days.
• Challenges to advance notice bylaws proposed by commentators.
• These bylaws could be oppressive and challenged with the oppression remedy.
• Securities regulators could address advance policies through their public
interest power, like shareholder rights plans.
US Developments on Bylaws
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• Delaware is the preeminent jurisdiction for corporate law in the US
• US companies may be subject to frivolous and opportunistic lawsuits,
particularly in conjunction with a merger and acquisition. These can be
expensive or distracting.
• In response, US companies have sought ways to prevent or limit the risk
of such suits by adopting the following types of bylaws
• Forum Selection
• Fee shifting
• Arbitration
Forum Selection Bylaws
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• Bylaw setting a jurisdiction as the exclusive forum for shareholder suits.
• Validity of exclusive forum bylaws upheld in 2013 by the Delaware Court
of Chancery in Boilermakers Local 154 Retirement Fund v. Chevron
Corp.
• Since this case, exclusive forum bylaws continue to gain traction to
prevent multi-forum litigation.
• Several courts in the US outside of Delaware have enforced exclusive
forum bylaws and dismissed litigation brought in contravention of them.
• Benefits of an exclusive forum bylaw are they prevent corporate waste
and opportunistic forum-shopping associated with multi-forum litigation.
• More corporations expected to adopt exclusive forum bylaws.
Forum Selection Bylaws
Continued
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• In a recent case, First Citizens, the Delaware Court of Chancery upheld
an exclusive forum bylaw of a Delaware corporation that required
stockholder litigation to be brought in North Carolina courts.
• Majority of the Delaware corporations’ operations were in North Carolina.
• First Citizens also rejected the plaintiff’s claim that the exclusive forum
bylaw was improper because it was adopted in connection with the
announcement of a merger agreement.
• “That the Board adopted [the exclusive forum bylaw] on an allegedly ‘cloudy’
day … rather than on a ‘clear’ day is immaterial given the lack of any well-pled
allegations … demonstrating any impropriety in this timing.”
Potential Application in Canada
• Prevent jurisdiction shopping, and relevant to companies with US
operations and US shareholders
Fee Shifting Bylaws
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• A May 2014 Delaware Supreme Court decision (ATP Tour) upheld bylaws
that would require a shareholder plaintiff who sues the company
unsuccessfully to pay the defendant company's litigation expenses.
• Delaware legislature expected to enact legislation limiting the
applicability of the Supreme Court's decision.
• Several publicly traded Delaware corporations have already adopted fee-
shifting bylaws by way of a board resolution.
Potential Application in Canada
• May have limited applicability in British Columbia for class actions
because of no cost system under the Class Proceedings Act.
• May be useful in other contexts in BC or in other jurisdictions in Canada.
Arbitration Bylaws
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• Other types of bylaws impacting litigation rights have been discussed,
including provisions which would mandate arbitration instead of litigation.
• Arbitration clauses have been upheld as a matter of contract.
• To the extent bylaws and articles create a contact, they may be able to adopt
arbitration provisions.
• Certain US REITS have adopted arbitration bylaws.
• Including Commonwealth REIT, whose bylaws were upheld by a US court.
• Commentators have proposed suggestions for drafting such bylaws:
• Fixing time periods, limiting or prohibiting discovery, specifying arbitrator
qualifications, setting applicable laws etc.
• Include a carve out for higher amounts so that the company legislation is still
handled by the courts where there is a right to appeal.
• Providing an exclusive forum in the event the bylaw is unenforceable.
Response from Proxy Advisory Firms
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Glass Lewis
• Recommends a vote against forum selection and fee shifting bylaws.
• Limits on choice of legal venue is not in shareholders’ best interests.
• Fee shifting bylaws can have a chilling effect on even meritorious suits.
ISS
• Vote case-by-case on bylaws which impact shareholders' litigation rights,
taking into account factors such as:
• rationale for adopting such a provision;
• disclosure of past harm from shareholder lawsuits;
• the breadth of application of the bylaw; and
• governance features such as shareholders' ability to repeal the provision and to
hold directors accountable through annual elections and a majority vote policy.
• Recommend a vote against fee-shifting bylaws where plaintiffs pay costs
evens if the plaintiffs are partially successful.
Conclusion
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• US companies continue to get creative with mechanisms to address the
increase in shareholder litigation and disputes.
• Adopting some of these bylaws may help Canadian companies address
shareholder disputes when they arise in Canada, as we saw with
advanced notice bylaws.
• Canadian companies should continue to monitor these developments.
Questions?
Contact:
Gary R. Sollis
T: (604) 443-7130
Daniel Katzin
T: (604) 691-6450
© 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking,
action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential
information may be relevant. Please see dentons.com for Legal Notices
Who is in charge?
November 2014 Dentons Canada LLP 35
Chair
Sets the agenda
Typically will conduct the formal meeting before opening the floor to questions or
providing the management presentation – Ensures the required business is conducted
Can adjourn the meeting to deal with issues that arise
Can control the process of questions – limiting time or number of questions that a
shareholder can ask to allow others to speak
Motions from the floor
November 2014 Dentons Canada LLP 36
When is a motion inappropriate?
Relates to the business at the meeting
With sufficient votes can put directors forward for election
How to address the issue
Levels of reaction
Disruptive shareholder/guest
November 2014 Dentons Canada LLP 37
Anticipating a potential disruption
Types of disruptions
Protests
Taking over the agenda during question period
Noise
Avoiding a potential disruption
Scrutiny on attendance
Social media watch
Security
Police
Dealing with a disruption
Levels of response
Letter from shareholder prior to meeting
November 2014 Dentons Canada LLP 38
DEMANDS
Independent Chair – to be agreed by the proponent
Review of proxies – prior to the meeting
Review of shareholder lists – prior to the meeting
Scrutineer – to be agreed
Proxy tabulator – to be agreed
Adjouring the meeting
November 2014 Dentons Canada LLP 39
How long?
Additional notice to reconstitute
Impact on business already conducted
Questions?
Contact:
Catherine Wade
T: (604) 691-6431
© 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking,
action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential
information may be relevant. Please see dentons.com for Legal Notices
Case Law Update:
Recent cases from the Supreme Court of Canada on contractual duties, interpretation and arbitration appeals
Craig Dennis
CPD BootcampNovember 26, 2014
November 2014 Dentons Canada LLP 42
• Bhasin v Hrynew, 2014 SCC 71
• Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53
Bhasin v Hrynew, 2014 SCC
November 2014 Dentons Canada LLP 43
• Bhasin worked in sales as “enrolment director” with Can-Am
• Bhasin and Can-Am had 3 year agreement that would renew unless
notice to contrary given
• Hrynew also “enrolment director” and wanted a merger with Bhasin
• Hrynew encouraged Can-Am to pressure Bhasin into merger
• Can-Am considered restructuring of company that would have Bhasin
working for Hrynew’s agency, outlined plans to Alberta Securities
Commission
Bhasin v Hrynew, 2014 SCC
November 2014 Dentons Canada LLP 44
• Can-Am did not disclose extent of restructuring plan to Bhasin and
repeatedly misled and lied to him
• Can-Am appointed Hyrnew to monitor compliance of enrolment
directors with securities laws, required access to Bhasin’s books;
Bhasin refused.
• Can-Am lied to Bhasin about whether Hyrnew had duty to keep
information confidential
• Can-Am gave notice of non-renewal of the Agreement to Bhasin
• Bhasin lost the value of his business and took less remunerative work
with another company
Trial History
November 2014 Dentons Canada LLP 45
• Alberta Court of Queen’s Bench – Can-Am breached implied duty of good faith
in the contract, Hrynew induced a breach of contract
• Alberta Court of Appeal – allowed appeal and dismissed lawsuit
• Supreme Court of Canada – accepts trial court’s conclusion and establishes
duty of honesty
Significance of Bhasin
November 2014 Dentons Canada LLP 46
• Good faith contractual performance is a general organizing
principle in the common law of contract
• At a minimum, there is a common law duty which applies to all
contracts to act honestly in the performance
November 2014 Dentons Canada LLP 47
• Law in relation to good faith performance of contracts formerly
unsettled and unclear – applied piecemeal in specific contexts
(employment, landlord-lessee, insurance, tendering)
• Court articulated a new organizing principle of good faith: parties must
perform their contractual duties honestly and reasonably and not
arbitrarily or capriciously
• Exemplifies the notion that a contracting party should have appropriate
regard to the legitimate contractual interests of contracting party
• “Appropriate regard” depends on the context of the contractual
relationship
(1) Organizing principle of good faith
November 2014 Dentons Canada LLP 48
• Generally the principle is applied by resorting to law that gives effect to
aspects of the principle in situations and relationships – honest, candid,
forthright or reasonable contractual performance
• Must be applied consistently with freedom of contract and to pursue
individual self-interest – not intended to be a form of judicial activism
(1) Organizing principle of good faith
November 2014 Dentons Canada LLP 49
• The duty to act honestly as expressed by the Court means
• “…simply that parties must not lie or otherwise knowingly mislead each other about
matters directly linked to the performance of the contract. This does not impose a duty
of loyalty or of disclosure or require a party to forego advantages flowing from the
contract; it is a simple requirement not to lie or mislead the other party about one’s
contractual performance.”
• Operates as a minimum standard of honest contractual performance –
operates irrespective of intentions of the parties (meaning, parties are
not free to exclude the duty)
• Court provides for possibility of contracting parties modifying the
content of the duty to act honestly through express terms in the
contract, so long as its “core requirements” respected
(2) Common law duty to act honestly
Remaining Questions
November 2014 Dentons Canada LLP 50
• Does the duty extend to negotiation phase? Arguably, the case speaks
only about performance of the contract
• Is this a contractual obligation, or something broader, such as a new
tort of contractual performance?
• To what extend can you contract out of the duty? What is the “core
requirement” that cannot be excluded by contract?
Implications of the Decision
November 2014 Dentons Canada LLP 51
1. Parties must not lie or knowingly mislead the other party on matters
linked to the performance of a contract
2. When drafting a contract consider including a provision that
establishes the standard of good faith performance that will govern
the agreement
3. Consider documenting how you have come to a decision concerning
contractual performance as that issue may be the subject of litigation
Sattva Capital Corp. v Creston Moly Corp., 2014 SCC
November 2014 Dentons Canada LLP 52
• Parties entered into agreement to pay a finder’s fee for acquisition of
mining property
• Dispute over manner of payment of the finder’s fee – which date to
price the shares
• Dispute subject to arbitration clause in agreement
Arbitration Act, RSBC 1996
November 2014 Dentons Canada LLP 53
Appeal to the court
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 of law
may prevent a miscarriage of justice,
…..
History of Appeals
November 2014 Dentons Canada LLP 54
1. BCSC – no question of law, denied leave
2. BCCA – there is a question of law, granted leave (remitted to BCSC)
3. BCSC – dismissed appeal, decision of arbitrator correct
4. BCCA – reversed decision
5. SCC – reinstated arbitral award in full
Significance of Creston Moly Corp.
November 2014 Dentons Canada LLP 55
1. A higher test for seeking leave to appeal an arbitration decision
1. A) what (and what is not) a question of law?
2. B) what is a miscarriage of justice?
3. C) what discretionary factors will the court consider?
2. Clarity on principles of contractual interpretation, in both arbitration
setting and more generally
November 2014 Dentons Canada LLP 56
• Formerly, contractual interpretation considered question of law
• That approach to be abandoned:• “Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the
principles of contractual interpretation are applied to the words of the written contract, considered
in light of the factual matrix”
• Some interpretation issues remain a question of law:
• - incorrect principle / legal test
• - failure to consider a relevant factor
• - formation of the contract
• - capacity of parties
• - requirements of certain contracts (in writing, etc.)
1A) Appealing an Arbitration Decision: Question of Law
November 2014 Dentons Canada LLP 57
• However, court should be cautious in identifying inextricable questions
of law in what is in essence a dispute interpreting terms of a contract
• In the context of commercial arbitration, standard of review will typically
be reasonableness unless the question is one that would attract the
correctness standard, such as constitutional questions or questions of
law of central importance to the legal system as a whole and outside
the adjudicator’s expertise
1A) Appealing an Arbitration Decision: Question of Law
November 2014 Dentons Canada LLP 58
• For a court to grant leave, the applicant must also demonstrate a
miscarriage of justice
• Miscarriage of justice = (1) alleged legal error pertains to material
issue, and (2) if decided differently would affect result of the case
1B) Appealing an Arbitration Decision: Miscarriage of
Justice
November 2014 Dentons Canada LLP 59
• A non-exhaustive list of discretionary factors to consider in a leave
application
• Conduct of the parties;
• Existence of alternative remedies;
• Undue delay; and
• The urgent need for a final answer.
1C) Appealing an Arbitration Decision: Discretionary
Factors
November 2014 Dentons Canada LLP 60
• Law on interpreting contracts has evolved towards a practical, common
sense approach not dominated by technical rules of construction
• The overriding concern is to determine “the intent of the parties and the
scope of their understanding”
• Must read the contract as a whole, consistent with surrounding
circumstances or factual matrix
• background facts at the time the contract was executed that were known (or
reasonably ought to have been known) by the contracting parties
• Admissible as evidence because relevant to the way the language used in
the contract is to be understood.
2. Contractual Interpretation Principles
Implications of the decision
November 2014 Dentons Canada LLP 61
1. Choose your arbitrator carefully – you will unlikely be able to appeal
an award
2. Get it right the first time – ensure you have all the evidence you need,
both regarding the contract and surrounding circumstances, to
support your interpretation of the agreement
3. High threshold for appeal – arbitrator must not only be incorrect but
must be unreasonable
Questions?
Contact:
Craig Dennis
T: (604) 648-6507
© 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking,
action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential
information may be relevant. Please see dentons.com for Legal Notices