Easy as Pi

“I must go down to the seas again, to the lonely sea and the sky,
And all I ask is a tall ship and a star to steer her by;”¹

The Law is easy. Piercing the perplexing prolix prose pronouncements of presiding prefects of public jurisprudence often is not.

In the case of reviewing courts, the question is simple: Is this matter important enough for us to hear it. It is important if (1) one of the parties did not get a fair hearing, because fair hearing is the essence of the business we are in, or (2) if the case decides an issues of importance to more than the parties at hand -- it is a matter of precedent, which really ought to be determined by “higher” courts not “lower” tribunals.

So what does a fair hearing mean? It means two things: (1) The party was “heard” before their case was dismissed, and (2) The hearing was before an unbiased decision-maker. And what does being “heard” entail? And what constitutes stepping over the line to “bias”? The answers are in the minds of the reviewing judge or judges. Their interpretation of precedents gives voice to what they have in mind.

So, what does a “precedent” mean? It means that the case (1) interprets statutory or subordinate legislation or (2) contractual language, in such a way that it will have important implications for cases that follow it.

So long as the legislation lies unamended, the interpretation may be important to other parties. Otherwise, it would not be important enough for review.

So long as the contract language interpreted by the “lower court” is common in “standard form,” “boiler plate” precedents that are widely used, the present interpretation of that language may have important knock-on effects for other participants in the field or industry so as to be worthy of the attention of a reviewing court. In both cases the “higher” court will review the matter to ensure the proper precedent is set.

How do we recognize a “bad” precedent? Just looking at the wording of the decision itself, and ignoring the particular facts of the case, one can pluck out “the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle.”² This process of isolating erroneous statement of law in the course of a lower court’s reasons for judgment is called finding “extricable errors of law.”

Briefly stated, questions of law are questions about what the correct legal test is; questions of fact are questions about what actually took place between the parties; and questions of mixed law and fact are questions about whether the facts as decided also satisfy the legal tests. In the law of tort, the question what “negligence” means is a question of law. The question whether the defendant did this or that is a question of fact. And, once the applicable standard for negligence is articulated, the question whether the defendant met the stated standard on the facts of the case appropriate is a question of mixed law and fact. ³

In other words, finding the right recipe or formula for Pi is the matter of law, finding the ingredients is a matter of fact, and applying the right ingredients to the right recipe is a mixed question of fact and law. The reviewing court is only worried about ensuring the right recipe is used, and could not care less whether the proper ingredients were combined in the right way in the making of any individual pie.

As long as the right recipe is used, the decision is not important enough to be reviewed. The reviewing court has neither the time nor inclination to ensure justice on the merits was done as between the immediate parties to the lower court decision.

Simple enough.

Let’s see this in action.

In the Tall Ships⁴ case, the parties selected a well known and well-respected construction arbitrator, Bill Neville, to deal with a number of issues arising out of a large construction project with a large number of interrelated contracts and agreements. The parties agreed that the decision of the arbitrator was to be final, subject only to appeals on questions of law under s. 45(2) of the Arbitration Act, 1991, S.O. 1991, c. 17 (“Arbitration Act”). The litigation between the parties arose out of a public-private partnership between the Brockville and Tall Ships Landing Development Ltd. (“Tall Ships”) to develop waterfront property on the St. Lawrence River in downtown Brockville. The project, which continued for over a decade from conception until completion, included a mixed residential/commercial condominium tower and an attraction known as the Maritime Discovery Centre (“MDC”). Tall Ships agreed to assume various roles with respect to the construction of the MDC as part of the web of contracts between the parties. The basic idea was that Tall Ships would develop the property and, when it was “substantially complete”, Tall Ships would sell the property to Brockville for a price that was set out by a formula set out in the purchase agreement dated March 9, 2011. Part of that formula included the cost of construction, the budget for which was defined in that agreement as “$7,400,000 relating to the design and construction of the approximate 27,000 square foot MDC base building and MDC Interior Fit-Ups.”

Whether Brockville was liable for the difference of roughly $1,800,000 between the $7,400,000 “estimate” and the actual cost of construction was one of three major issues between the parties. The completed MDC was roughly 6,000 square feet larger than designed. Tall Ships claimed approximately $1,800,000 in additional construction costs from Brockville on the basis that Brockville was aware that construction was over budget, and that an appointed steering committee approved design changes that inevitably led to cost increases, despite not having the authority to increase the construction budget. Brockville refused to pay the additional costs on the basis that it was unaware that construction costs exceeded the budget until the MDC was substantially complete, and that it had not consented to any increases over the $7,400,000.

The second issue arose from Brockville’s refusal to pay invoices in the amount of $929,893 for remediation costs on the basis that they were out of time pursuant to the terms of one of the contracts.

The third issue involved Tall Ships’ claim for interest on monies paid by Brockville one year after its invoices were submitted. Tall Ships did not advise Brockville that it would be claiming interest on these invoices prior to the closing date but asked for prime plus five percent in interest in its claim before the arbitrator.

The arbitrator found in favour of Brockville on all three issues. The reviewing judge found in favour of Tall Ships on all three issues and ordered a new arbitration before a different arbitrator. The Ontario Court of Appeal reinstated Bill Neville’s original decision.

The arbitrator is the “lower court,” the Superior Court of Justice was the “intermediate reviewing court” and the Ontario Court of Appeal was the final reviewing court. The Court of Appeal found that the Superior Court Judge had no basis upon which to interfere with the arbitrator’s decision because Tall Ships could not demonstrate that any errors rose to the level required to institute a review. In fact:

1.  The application judge erred by characterizing questions of mixed fact and law as “extricable” errors of law;
2. The application judge’s finding of breaches of procedural fairness under s. 46 of the Arbitration Act, conflated errors on the merits and errors of procedure. The narrow basis for setting aside an arbitral award for a failure of natural or procedural justice, is not concerned with the substance or merits of the parties’ dispute and is not to be treated as an alternate appeal route;
3. As a matter of policy, judges should be cautious about extricating questions of law from the interpretation process: Failure to do so will create the delays and added expense that choosing an arbitral process seeks to avoid. It is only the true precedent setting case that should be the subject of a review; and
4. In this case, Tall Ships could not pluck out or extricate any error in law or principle in the arbitrator’s decision, and therefore any and all errors of mixed law and fact must be allowed to stand.

While the Court of Appeal’s decision is rather lengthy and overly detailed, these four points are the relevant takeaways from this case.

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David Debenham is an arbitrator, a construction adjudicator, a construction law specialist, a CPA, and a forensic accountant.