The parties’ dispute concerned payments arising from Northwest’s production of a high-end magazine for Alberni. Alberni used the magazine to market the sale of luxury residential units it had developed in Vancouver. After the magazine’s first issue was published, Alberni decided that it did not want to proceed with a second issue. Alberni paid a portion of the amount Northwest claimed was due but disputed the remainder on the ground that it had already overpaid Northwest for certain expenses. In essence, the question before the arbitrator was whether the parties had complied with their obligations under their magazine production agreement or amended their agreement through their ongoing discussions.
The parties’ magazine production agreement provided that any disputes under it were to be resolved by arbitration “held as quickly as reasonably possible.” The arbitration was to take the form of final offer arbitration; the arbitrator was required to accept one party’s submission in its entirety and provide reasons.
On November 22, 2018, Northwest commenced an arbitration for payment in full of its final invoice. Alberni sought to offset what it saw as overpayment against any amount it owed to Northwest. The arbitration hearing proceeded over five days from August to October 2019. After the hearing, the parties delivered their final offers to the arbitrator under seal. Northwest’s offer was for Alberni to pay it $175,000. Alberni’s offer was that it pay nothing.
On November 8, 2019, the arbitrator issued an award in which he set out his reasons for accepting Northwest’s final offer. The arbitrator found that the parties’ agreement had “evolved over time based on the words, conduct and written documents exchanged by the parties,” as a result of which the terms were amended. Specifically, the parties agreed to a written change order that provided for a fixed price to be paid to Northwest and did not require it to account for out-of-pocket expenses. This eliminated Alberni’s set off claim.
Alberni sought to set aside the award pursuant to s. 30 of the now repealed British Columbia Arbitration Act, RSBC, 1996, c. 55 on the basis that the arbitrator had committed an arbitral error. “Arbitral error” means a corrupt or fraudulent act, bias, exceeding the arbitrator’s powers, and/or failure to observe the rules of natural justice. Alberni claimed that the arbitrator had failed to observe the rules of natural justice because he failed to determine Alberni’s right to set off for the alleged overpayment. The court found that the arbitrator had considered the issue of set off, holding that there was no reliable evidence to support the alleged overpayment, but in any event, the arbitrator’s determination that the parties had amended their agreement so that Northwest would be paid a fixed price meant that it was not required to account to Alberni for the non-party costs incurred.
In the alternative, Alberni sought leave to appeal the award under s. 31 of the Arbitration Act on a question of law:
- The arbitrator placed an impossible burden on Alberni, by reversing the burden and requiring it to prove that Northwest had not incurred expenses billed for in circumstances in which Northwest had not kept reliable records as to what it had spent;
- The arbitrator made two critical findings of fact in the absence of any admissible evidence to support them, one of which was that the arbitrator had made a mathematical error in tallying the amount of the alleged overpayment; and
- The arbitrator proceeded on a wrong principle, effectively treating the approval and payment of an invoice as foreclosing Alberni’s ability to question its legitimacy later on.
The court found that none of those grounds were extricable errors of law, but were questions of mixed fact and law, and in light of the arbitrator’s finding that Northwest was not required to justify its out-of-pocket expenses under the fixed fee arrangement provided for in the change order, none of them had merit.
Therefore, the court dismissed Alberni’s set aside and leave to appeal petitions and granted Northwest’s application to enforce the award.
Conclusion
Final offer selection arbitration (also called baseball arbitration) is most commonly used in labor arbitrations where the parties have an ongoing relationship. Parties may structure the process in a variety of ways—parties may make a submission that addresses the entire dispute or they may make a submission on each issue in dispute. Parties may agree that the arbitrator is to provide reasons or not, although the latter approach does not foreclose challenges or problems with enforcement. Final offer selection arbitration provides several benefits to the parties. It requires each of the parties to realistically assess the strengths and weaknesses of its case and put forward a reasonable submission to the arbitrator in the hopes that the arbitrator will choose its submission. A by-product of this process is that it makes settlement more likely. But it also gives parties greater control over the outcome; parties (even the winners) sometimes believe that the tribunal has “split the baby” in the award.
It is interesting that the parties in this case chose final offer selection arbitration in a contract dispute where the parties had no ongoing relationship. Their contract provided that they wanted the arbitration to be held “as soon as reasonably possible.” It is difficult to determine from the decision whether the parties achieved either a cheaper or faster process. It appears that they had a full hearing over multiple days and the arbitrator was required to provide full reasons in his award. Also, it is not clear whether the process achieved the result of pushing the parties’ positions closer together. Alberni’s position was that it was not required to pay anything further to Northwest because it had overpaid by just over $380,00, while Northwest’s position was that it was owed $175,000, in respect of a contract in which the total amount paid by Alberni to Northwest before the arbitration was just over $690,000.
This case also demonstrates that a final offer selection arbitration process is not immune from challenges to the award. It appears that Alberni was simply re-arguing its case before Justice Groves. The frequency with which the courts hear challenges to awards has led to calls for changes to provincial arbitration legislation to eliminate the right of appeal, except where parties expressly “opt in” in their arbitration agreements. In this case, the judicial proceeding five days of court time, and there may yet be another appeal.
