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British Columbia (Forests) v. Teal Cedar Products Ltd.

2013 SCC 51 [2013] 3 SCR 301 Court SCC Decision date 2013-10-04 Docket 34769 English

PartiesHer Majesty The Queen in Right of the Province of British Appellant·Columbia as represented by the Ministry of Forests Appellant·Teal Cedar Products Ltd. Respondent

Counsel (2)
Solicitor for the appellant: Attorney General of British Columbia, Vancouver.
Solicitors for the respondent: Hunter Litigation Chambers, Vancouver.

Judges LeBel, Louis; Fish, Morris J.; Rothstein, Marshall; Cromwell, Thomas Albert; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard

Delivered by Rothstein J. (LeBel, Fish, Cromwell, Moldaver, Karakatsanis and Wagner JJ. concurring)

On appeal from British Columbia

Subjects Arbitration

Contents

Reasons for Judgment — Rothstein J. (LeBel, Fish, Cromwell, Moldaver, Karakatsanis and Wagner JJ. concurring)

I. Introduction

Rothstein J. —

In this appeal, the parties ask the Court to determine whether an arbitrator making an award under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55 (“CAA”), now the Arbitration Act, may provide for compound interest or only simple interest on the sum directed to be paid by an award. For the reasons that follow, I find that compound interest cannot be awarded by arbitrators operating under the CAA. As a result, I would allow the appeal.

II. Facts

Teal Cedar Products Ltd. (“Teal”) is a forestry company in British Columbia (the “Province”). Teal had a forest licence to harvest timber in a particular area of the province, including the right to cut a certain amount of timber known as an allowable annual cut. In 1999, following the creation of a provincial park, Teal’s allowable annual cut was reduced by the Province. In 2001, Teal began legal action against the Province, claiming compensation for this partial expropriation.
In 2002, the Province enacted retroactive legislation in the form of the Protected Areas Forests Compensation Act, S.B.C. 2002, c. 51 (“PAFCA”), which restricted the ability of forestry companies to obtain compensation for reductions in allowable annual cut when such a reduction was caused by the creation of a provincial park. The PAFCA specified that the reduction did not constitute an expropriation within the meaning of the Expropriation Act, R.S.B.C. 1996, c. 125 (s. 7(3)). The PAFCA required Teal to seek compensation for the reduction of the allowable annual cut under s. 60 of the Forest Act, R.S.B.C. 1996, c. 157, as the Forest Act read at the time of the reduction (s. 7(1)). In the event that parties could not agree as to the appropriate compensation, s. 60(7) of the Forest Act, as it read at the time of Teal’s loss, provided for the dispute to be resolved through arbitration under the CAA. (The relevant statutory provisions are reproduced in the Appendix.)
As a result, Teal’s dispute with the Province was subject to arbitration under the CAA, with interim and final reasons being released in 2010. The arbitrator awarded Teal $6,350,000 plus legal costs. That award included interest at the prime rate compounded annually from the date in 1999 when the allowable annual cut was reduced to the date of the award, amounting to over $2.2 million in interest. The arbitrator concluded that compound interest could be awarded because it was not “proscribed by legislation” (interim decision, at para. 268 (A.R., at p. 183)). While a number of other issues were raised as part of that arbitration and in the lower courts, the only issue remaining before this Court is the validity of the award for compound interest.

III. Judicial History

A. Supreme Court of British Columbia, 2011 BCSC 360, 23 B.C.L.R. (5th) 144

Both Teal and the Province sought leave, in accordance with the CAA, to appeal certain questions of law arising from the arbitration decision before the Supreme Court of British Columbia. Of relevance now, the Province challenged the arbitrator’s decision to award Teal compound interest rather than simple interest. The Province argued that compound interest was prohibited under the Court Order Interest Act, R.S.B.C. 1996, c. 79 (“COIA”), which is incorporated into the CAA under s. 28 of that Act. Macaulay J. upheld the arbitrator’s award of compound interest. He relied upon the absence of a statutory bar to including compound interest as part of the award rather than on the award and earlier decisions which supported that conclusion. In particular, Macaulay J. relied on McKechnie v. McKechnie, 2005 BCCA 570, 47 B.C.L.R. (4th) 228 (where compound interest was awarded as part of an award governed by the CAA), and Morriss v. British Columbia, 2007 BCCA 337, 69 B.C.L.R. (4th) 1 (where compound interest was ordered as a component of compensation in an expropriation case to which the Expropriation Act did not apply).

B. Court of Appeal for British Columbia, 2012 BCCA 70, 29 B.C.L.R. (5th) 330

The Court of Appeal concluded that its earlier decisions in McKechnie and Morriss were applicable and binding on the issue of compound interest and therefore denied the Province leave to appeal. The Court of Appeal concluded that it was not appropriate to revisit the decision in Morriss given that it was a recent case, where the judgment of the majority was fully reasoned and based on all the jurisprudence. The Court of Appeal noted that the Province “has, of course, a legislative remedy should it desire to act” (para. 59).

IV. Analysis

The only issue in this case is whether the arbitrator had the authority to award compound, as opposed to simple, interest to Teal to compensate the company for the time between the loss of its timber harvesting rights and the time of the arbitration award. While Teal has advanced a number of different grounds to support the award of compound interest, in my opinion, the statutory regime does not permit the arbitrator to make such an award. In reaching this conclusion, I consider the COIA and its interaction with the CAA, which in my view determine the outcome of this case. I also consider the arguments in respect of the compensation principle in expropriation cases and whether compound interest arbitration awards can be grounded in equity despite the COIA. Neither the principle of full compensation following an expropriation nor any equitable principle permits the award of compound interest in this case.

A. Operation of the COIA

The COIA contains two parts: one addressing prejudgment interest and one addressing postjudgment interest. Prejudgment interest is interest that compensates the plaintiff for the time period between when the cause of action arose and the date that the sum owed is ordered to be paid by judgment of the court: COIA, s. 1(1). Postjudgment interest is compensation that covers the time period between when the judgment is pronounced or the date when money is payable under the judgment, whichever is later, and when payment is made: COIA, s. 7(2). In both cases, compound interest is prohibited: s. 2(c) (prejudgment) and s. 7(2) (postjudgment).
The COIA provisions on interest are mandatory: “. . . a court must add to a pecuniary judgment an amount of interest” (s. 1(1) prejudgment) and “[a] pecuniary judgment bears simple interest” (s. 7(2) postjudgment). However, if there is an agreement between the parties about interest, then the court must not award prejudgment interest under s. 1 (s. 2(b)).
There is no doubt that compound interest is a more accurate way of compensating parties for the time-value of money. Indeed, the Law Reform Commission of British Columbia recommended eliminating the prohibition on compound interest in its 1987 Report on the Court Order Interest Act, at pp. 31-32. However, the legislature has not yet amended the COIA to remove the prohibition of interest on interest, so simple interest, despite its flaws, remains the rule in British Columbia courts.

B. Interpreting the Interaction Between the COIA and the CAA

According to the terms of the Forest Act, Teal’s dispute with the Province was to be resolved by arbitration under the CAA. The COIA does not apply directly to arbitrations under the CAA. Rather, the CAA states that the COIA applies by providing that “a sum directed to be paid by an award is a pecuniary judgment of the court” (s. 28). The interaction between these two statutes is key to understanding Teal’s entitlement to interest. In interpreting these statutes, I first consider the ordinary meaning of s. 28 of the CAA in light of its legislative history. In my view, this analysis reveals that only simple interest can be added to the sum directed to be paid by an award. I then consider Teal’s proposed interpretation of the CAA, which would permit the awarding of compound interest as part of an arbitration award. In my respectful opinion, Teal’s interpretation is untenable.
(1) Ordinary Meaning of Section 28 of the CAA

(1) Ordinary Meaning of Section 28 of the CAA

The CAA incorporates the COIA in s. 28:
For the purposes of the Court Order Interest Act and the Interest Act (Canada) , a sum directed to be paid by an award is a pecuniary judgment of the court.

In my view, the effect of this provision, interpreted in light of its legislative history, is to cause arbitration awards to be treated like court judgments governed by the terms of the COIA, such that only simple interest can be added to the award.

As discussed above, s. 1 of the COIA provides that a court must add interest to a pecuniary judgment. Section 28 of the CAA deems the amount ordered to be paid by an arbitration award to be a pecuniary judgment of the court. The effect of that deeming rule is that an arbitrator must apply the provisions of the COIA. Since pecuniary court judgments have simple, not compound, interest added to them by operation of the COIA, the ordinary meaning of s. 28 is to cause simple, not compound, interest to be added to the sum directed to be paid by an award.
This conclusion is supported by the legislative history. In 1982, the Law Reform Commission of British Columbia released a report on arbitration stating:
We have concluded that an arbitrator should not have a discretion as to whether to award interest, and that all awards should automatically carry interest in the same manner as a judgment debt, which would include both post and pre-judgment interest. [Emphasis added.]

(Report on Arbitration, at p. 51)

As discussed above, the COIA provides for a pecuniary court judgment in British Columbia to bear simple interest pre- and postjudgment. If arbitration awards are to carry interest in the same manner as judgment debts, the outcome recommended by the Commission, the sum directed to be paid under an award must also be subject to simple interest pre- and post-award.

The Commission’s recommendation was motivated by a concern that absent an authority in the Act for awarding interest, an arbitrator operating under that Act might not have the power to order the payment of interest: Report on Arbitration, at p. 50. In support of their recommendations, the Commission provided a model arbitration act. This model act included a draft section that is virtually identical to s. 28 of the CAA. In the notes accompanying the proposed section on interest, the Commission indicated that the section was intended to give effect to the recommendation about aligning arbitration interest with judgment debt interest: p. 51. Thus, it appears that by enacting s. 28 of the CAA, the legislature adopted the recommendation of the Commission that court judgments and arbitration awards should be on equal footing when it comes to interest awarded under the COIA.
In light of both the ordinary meaning of the section and its legislative history, s. 28 of the CAA has the effect of requiring arbitrators to apply the provisions of the COIA. Subject to the exceptions listed in s. 2(a), (b), (d) and (e) in the COIA, arbitrators operating under the CAA cannot award compound interest on a sum directed to be paid by an award because the power to award interest is limited by the COIA, which provides for simple interest only both for the pre-award and post-award periods.
(2) Teal’s Position on the Interpretation of Section 28

(2) Teal’s Position on the Interpretation of Section 28

Teal argues that it is possible for arbitrators to include compound interest as part of the award rather than on top of the award. In making this argument, Teal essentially adopts the reasoning in McKechnie. Teal argues that this is possible because s. 28 of the CAA refers to “a sum directed to be paid by an award” and nothing in the CAA precludes an arbitrator from including compound interest as part of that sum. This is the interpretation that the British Columbia Court of Appeal adopted in McKechnie in reaching the conclusion that s. 28 of the CAA did not restrict arbitrators from making an award including compound interest.
I cannot agree with this interpretation of the CAA. Similar language to that of s. 28 is used in s. 1 of the COIA: “. . . a court must add to a pecuniary judgment an amount of interest calculated on the amount ordered to be paid”. The phrase “amount ordered to be paid” in the COIA has been interpreted to mean only the principal of the judgment: Hongkong Bank of Can. v. Touche Ross & Co. (1989), 36 B.C.L.R. (2d) 381 (C.A.), at p. 391.
The language in the COIA is very similar to the language in the CAA: “amount ordered to be paid” (COIA) and “sum directed to be paid” (CAA). If the language of “a sum directed to be paid” in s. 28 of the CAA permitted interest to be included in the original award, then it would seem that such an interpretation would apply to s. 1(1) of the COIA, given the similarity of the language. That would mean that courts would be able to include interest, including compound interest, in the pecuniary judgment. 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 can be 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. While s. 2(c) of the COIA would prevent the award of interest on top of the interest portion of the award, there would still be double recovery because there would be interest payable twice on the principal portion of the award: once as a result of the inclusion in the award and once as a result of the operation of s. 28 of the CAA. This in an untenable result. Indeed, it was this concern about double recovery that motivated Saunders J.A. to dissent in Morriss when the B.C. Court of Appeal concluded that there was an equitable basis for compound interest to be awarded in expropriation cases not governed by the Expropriation Act (para. 48).
(a) Teal’s Submissions on Avoiding Double Recovery

(a) Teal’s Submissions on Avoiding Double Recovery

Teal, however, argues that double recovery can be avoided by adopting a more restricted interpretation of s. 28 of the CAA. Teal advanced two different interpretations of s. 28 to avoid double recovery. Neither is based on a tenable interpretation of s. 28 of the CAA.
First, in its factum, Teal argued that s. 28 of the CAA only imposes the postjudgment provisions of the COIA on sums directed to be paid by awards. However, as the Province pointed out during oral argument, this would mean that s. 28 served no purpose during the six-year period running from when the CAA was enacted in 1986 to when the postjudgment provisions of the COIA were finally brought into force in 1992. During that six-year period, if Teal’s submission that s. 28 did not apply to the prejudgment provisions of the COIA was accepted, s. 28 would have had no purpose since only the prejudgment provisions of the COIA were in force, the provisions that Teal asserts s. 28 was not designed to capture.
If the intent of the legislature was to restrict the operation of s. 28 of the CAA to the postjudgment provisions of the COIA, it could have done so expressly. No such restrictive language is present. In my view, s. 28 cannot be read as being limited to only postjudgment interest.
Second, in oral argument, Teal presented a different interpretation of s. 28 that would permit both the pre- and postjudgment provisions to operate in respect of arbitration awards, but would restrict the operation of the prejudgment provisions to the time period between the issuance of the arbitration award and the time when a court enters the terms of the award as a judgment as part of an enforcement proceeding under s. 29 of the CAA. Teal argued that since s. 1 of the COIA speaks to interest running from the time the cause of action arose, s. 1 as applied to an arbitration award would only apply to the time period after an arbitration award is issued, because that arbitration award is itself the “cause of action”.
On this starting assumption, double recovery of interest is avoided because the arbitrator would have the jurisdiction to award interest from the date of the occurrence of the underlying facts to the date of the award (compound or simple interest at the discretion of the arbitrator). Then a court would have the jurisdiction to award interest from the date of the award to the date of the award being entered as a judgment as part of enforcement proceedings (prejudgment simple interest) and interest from the date of award being entered as a judgment as part of enforcement proceedings until such time as the amount is paid (postjudgment simple interest).
There are two problems with this approach. First, it relies on an unnatural and strained interpretation of the phrase “cause of action” in the context of arbitration under the CAA. An arbitration award is the result of a resolution of the cause of action and there is nothing to suggest that it gives rise to a new cause of action itself.
Second, Teal’s interpretation fails to recognize that s. 28 deems the sum directed to be paid by an award to be a pecuniary judgment of the court. Section 28 does not depend on a party taking the step of enforcing an arbitration award in court — the sum directed to be paid by the award is a pecuniary judgment of the court by virtue of s. 28 of the CAA whether or not any enforcement proceedings are undertaken. That is the ordinary meaning of s. 28. Section 28 does not contain any language requiring enforcement proceedings under s. 29 of the CAA to be undertaken in order for the interest provisions to become operational.
Under s. 29, a court enters “judgment . . . in the terms of the award”. The judgment of a court is already a judgment and does not need s. 28 to deem it “a pecuniary judgment of the court” again. And yet Teal’s interpretation requires that this be the case. The result is to render s. 28 meaningless. It is an accepted principle of statutory interpretation that legislative provisions should not be interpreted to be “mere surplusage”: R. Sullivan, Sullivan on the Construction of Statutes (5th ed. 2008), at p. 210, citing R. v. Proulx, 2000 SCC 5, [2000] 1 S.C.R. 61, at para. 28, per Lamer C.J.
(b) Absence of a Provision Deeming an Arbitrator to Be a Court

(b) Absence of a Provision Deeming an Arbitrator to Be a Court

Teal argues that one of its interpretations must be adopted because s. 1(1) of the COIA only imposes a duty to award interest on a “court” and not an arbitrator. Teal says that nothing in s. 28 deems an arbitrator to be a court. There is no doubt Teal is correct that s. 28 of the CAA does not expressly deem an arbitrator to be a court. However, it seems to me that this is the necessary implication of stating that a sum directed to be paid by an award is “a pecuniary judgment of the court”.
Section 28 of the CAA is the statutory authority that provides for the sums directed to be paid under awards to carry interest. Apart from s. 28, arbitrators operating under the CAA are not permitted to award interest since, as I discussed above, interest cannot be awarded as part of the award itself. Accepting that, it is then necessary to ask who is required to provide for interest under s. 28: the arbitrator or a court? If s. 28 is to have any practical effect, it seems to me, it must be the arbitrator who is directed to award interest under it.
If s. 28 required a court to be involved to make the interest order, the arbitrator would be able to award the principal amount but then the parties would have to go to court to get any interest on that amount. There are two problems with this approach. First, any efficiencies that were obtained as part of the arbitration process would be undermined, since parties would always need to involve the courts in order to get interest on the sums directed to be paid under their awards. Arbitration schemes are intended to be efficient methods of dispute resolution: Report on Arbitration, at pp. 2-3. An interpretation of s. 28 that requires the involvement of both an arbitrator and the court to provide for final resolution of a dispute including the award of interest runs contrary to that legislative purpose.
Second, it seems that this argument effectively makes an enforcement proceeding under s. 29 a prerequisite for receiving interest because a party would have to go to court in order to seek a judgment of the court for the award of interest. As such, this argument suffers from the same flaw I have discussed previously — it renders s. 28 surplusage. If a court is the only body that can award interest, there is simply no need for s. 28.
(3) Conclusion on the Interpretation of Section 28 of the CAA

(3) Conclusion on the Interpretation of Section 28 of the CAA

As a result, I must reject Teal’s submission that interest can be included in an arbitration award under the CAA. As a necessary corollary to this conclusion, to the extent that the B.C. Court of Appeal relied on similar reasoning in permitting an award of compound interest as a part of an arbitration award in McKechnie, that decision must no longer be considered to be good law.
I note, in passing, that this conclusion is based on the specific statutory regime in place in B.C. Other provinces may well provide for the awarding of compound interest by arbitrators in situations where the B.C. statutes make no such provision.

C. Role of the British Columbia International Commercial Arbitration Centre (“BCICAC”) Rules

Teal also argues that s. 28 of the CAA is not the final answer on interest for arbitration awards since s. 22 of the CAA states that the British Columbia International Commercial Arbitration Centre rules (“BCICAC rules”), which permit arbitrators to award compound interest, apply to arbitrations under the CAA. In my view, however, the BCICAC rules do not create a power to award compound interest in arbitrations governed by the CAA.
I accept that s. 22 of the CAA provides that the BCICAC rules apply to arbitrations under the CAA and that Rule 37 of the BCICAC rules permits an arbitrator to order “simple or compound interest to be paid in an award”. However, s. 22(3) of the CAA makes clear that if the BCICAC rules are inconsistent with or contrary to the CAA, the CAA prevails: “If the [BCICAC rules] are inconsistent with or contrary to this Act, this Act prevails.” In my view, there is such an inconsistency in this case because s. 28 of the CAA specifically forecloses the possibility of awarding compound interest. Therefore, despite Rule 37 of the BCICAC rules, arbitrators operating under the CAA cannot award compound interest.

D. Applicability of the Principle of “Full Compensation” and Equity

Teal argues that since the underlying claim in this case is a type of expropriation, the principle of full compensation applies such that compound interest must be awarded. While compound interest is no doubt a better measure of the true cost of the loss suffered by Teal, there is a statutory requirement in this case to restrict Teal’s compensation by imposing simple interest. While courts presume that legislatures intend to provide full compensation for expropriations, that presumption can be rebutted by statutory provisions that demonstrate legislative intention to the contrary: Irving Oil Co. v. The King, [1946] S.C.R. 551, at p. 556; Inglewood Pulp and Paper Co. v. New Brunswick Electric Power Commission, [1928] A.C. 492 (P.C.), at p. 499. In my view, such provisions exist in this case.
Section 7(1) of the PAFCA limits Teal’s compensation in this case “to the amount of compensation determined . . . under section 60 of the Forest Act as it applies for the purposes of [the PAFCA]”. In turn, s. 60(7) of the Forest Act requires that Teal’s compensation be determined under the CAA (rep. S.B.C. 2004, c. 36, s. 38). As discussed above, 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. In my view, the interaction of these three statutes reflects legislative intention not to provide for compound interest as an aspect of full compensation in this case.
Therefore, many of the expropriation cases that Teal and the British Columbia Court of Appeal relied upon are irrelevant to this case because those cases did not involve the interpretation of the interaction between the PAFCA, the Forest Act and the CAA. In particular, this Court’s decision on the power of an arbitrator to award compound interest in an expropriation case in British Pacific Properties Ltd. v. Minister of Highways and Public Works, [1980] 2 S.C.R. 283, is not applicable because it predated the introduction of the CAA.
Morriss is also inapplicable to the case at bar because it concerned the jurisdiction of a court that was relying on equity to award compound interest. In reaching the conclusion that compound interest could be awarded by the court in that case, the B.C. Court of Appeal relied on the equitable jurisdiction of the court, which permitted the award despite the provisions of the COIA. The arbitrator in this case did not have jurisdiction to consider equity. Under the CAA, arbitrators can only consider equitable grounds where the parties specifically agree (s. 23). In this case, the agreement between Teal and the Province did not permit the arbitrator to deal with equitable grounds. As a result, the reasoning adopted by the B.C. Court of Appeal in Morriss, whether right or wrong, is not relevant to the resolution of this appeal.

V. Disposition

I would allow the appeal with costs throughout. The Province is to be granted leave, under the CAA, to appeal the arbitrator’s award of compound interest to Teal. I would set aside the arbitrator’s award of compound interest and substitute an award of simple interest.

Cases cited

Statutes and regulations cited