IN THE MATTER OF the Timber Harvesting Contract and ...



IN THE MATTER OF the Timber Harvesting Contract and Subcontract Regulation, BC Reg 22/96, as amended from time to time

AND IN THE MATTER OF an Arbitration

BETWEEN:

CANADIAN FOREST PRODUCTS LIMITED

- and -

JOE MARTIN & SONS LTD.

______________________________________________________________________________

PRELIMINARY AWARD ON JURISDICTION – PUNITIVE DAMAGES

______________________________________________________________________________

Date of Award: August 29, 2001

Sole Arbitrator: Paul J. Pearlman, Q.C.

Fuller, Pearlman, McNeil

103 – 1216 Broad St.

Victoria, BC

V8W 2A5

Telephone: (250) 388-4550

Facsimile: (250) 388-7133

Counsel for Peter G. Voith

Canadian Forest Products Limited Davis & Company

2800 Park Place – 666 Burrard St.

Vancouver, BC

V6C 2Z7

Counsel for Roy Stewart, Q.C.

Joe Martin & Sons Ltd. Lindsay Kenney

17th Floor – 700 W. Pender St.

Vancouver, BC

V6C 1G8

THIS APPLICATION

Canadian Forest Products Ltd. (Canfor) applies for an order that the claims of Joe & Martin & Sons Ltd. (JMS) for punitive damages be dismissed on the grounds that this arbitration tribunal does not have jurisdiction to award punitive damages.

BACKGROUND

This arbitration had its genesis in certain disputes between JMS and Canfor concerning the determination of stump to dump logging rates for 1999/2000 winter logging and 2000 summer logging operations. JMS and Northwood Inc., which merged with Canfor in November 1999, were parties to a replaceable timber harvesting contract dated November 1, 1998, which is governed by the Timber Harvesting Contract and Subcontract Regulation, BC Reg. 22/96 (the Regulation).

Since JMS filed its original notices of dispute in April, 2000, the scope of the disputes has been expanded, and to some extent refined, by the filing of various amendments. The current pleadings are contained in Revised Further Amended Notices of Dispute (the revised notices) dated May 31, 2001. In addition to the summer and winter logging rate disputes, JMS advances various claims for breach of contract against Canfor.

Canfor concedes that these claims for breach of contract are within the jurisdiction of an arbitrator under the dispute resolution provisions of the Regulation.

Each of the revised notices also includes claims by JMS against Canfor for punitive damages. Paragraph 7 of the revised notice concerning 1999/2000 winter logging operations refers to “a dispute regarding the claim of Joe Martin & Sons Ltd. for punitive damages based on Canfor committing as an independent actionable wrong, one or more of the tortious acts noted below”. That revised notice then particularizes claims for punitive damages based upon allegations against Canfor of conspiracy to harm, unlawful interference with economic interests, and breach of a duty to act reasonably or in good faith. The revised notice concerning summer logging rates contains virtually identical claims for punitive damages against Canfor.

JMS alleges that Northwood conspired with another licensee, Carrier Lumber Ltd., for whom JMS also performed timber harvesting services, to drive down rates, thereby causing loss to JMS and, ultimately, forcing it to cease operations.

JMS claims no relief against Carrier Lumber Ltd. in these proceedings, nor is that licensee a party to this arbitration.

However, JMS has brought separate arbitration proceedings against Carrier Lumber Ltd. in which it makes very similar allegations of conspiracy and abuse of economic power against that licensee. In those proceedings, JMS relies upon certain assertions of fact which closely parallel its pleadings in this arbitration.

In these proceedings, counsel for the parties agreed that the rate disputes and related claims for breach of contract should be heard separately from the claims for punitive damages, which are based on the alleged tortious conduct of Canfor.

SUBMISSIONS OF PARTIES ON JURISDICTION

On May 11, 2001, Canfor raised a preliminary objection to my jurisdiction to award punitive damages. By agreement between counsel for Canfor and JMS, I was asked to assume, for the purposes of this application only, that an arbitrator in proceedings under the Regulation, has the jurisdiction to consider tort claims, and to make the findings of independent actionable wrongs that would be necessary to any award of punitive damages. For the purposes of this application, I am also asked to assume, rather than to decide, that the grounds set out in the revised notices in support of the claims for punitive damages constitute independently actionable torts. Depending upon the outcome of this application, Canfor has reserved the right to bring further jurisdictional challenges to my authority to hear and decide the specific tort claims advanced in these proceedings.

Between May 11 and August 14, 2001, the parties exchanged detailed written submissions on the jurisdictional issue. During the course of those submissions, Arbitrator Alvarez issued his preliminary award in Joe Martin and Sons Ltd. v. Carrier Lumber Ltd. (July 11, 2001). He found that he had jurisdiction to consider tort claims arising under or in connection with the contract between JMS & Carrier Lumber Ltd., and to award punitive damages if such claims are supported by the evidence, and if all the elements for an award of punitive damages required by the law of British Columbia are proved. I discuss Arbitrator Alvarez’ award below.

On this preliminary motion, counsel for Canfor argues that neither the dispute resolution provisions incorporated in the replaceable timber harvesting contract between the parties, the Regulation, nor any provision of the Commercial Arbitration Act, RSBC 1996, c. 55, confers jurisdiction on an arbitrator to award punitive damages.

Clause 27.1 of the contract between the parties provides that “all disputes that have arisen or may arise between the Parties under or in connection with this agreement will be referred to mediation and, if not resolved by the Parties through mediation, will be referred to arbitration in accordance with the dispute resolution system established by Division 2 of Part 4 of the contract regulation.”

This languages implements the mandatory dispute resolution provisions of the Regulation, which include s. 5:

5. Every contract or subcontract must provide that all disputes that have arisen or may arise between the parties to the contract or subcontract under or in connection with the contract or subcontract will be referred to mediation and, if not resolved by the parties through mediation, will be referred to arbitration.

Section 6 of the Regulation adopts the Commercial Arbitration Act as part of the dispute resolution system.

Section 22(1) of the Commercial Arbitration Act provides:

22. (1) Unless the parties to an arbitration otherwise agree, the Rules of the British Columbia International Commercial Arbitration Centre for the Conduct of Domestic Commercial Arbitrations apply to that arbitration.

Section 23 of the Commercial Arbitration Act provides:

23. An arbitrator must adjudicate the matter before the arbitrator by reference to law unless the parties, as a term of an agreement referred to in section 35, agree that the matter in dispute may be decided on equitable grounds, grounds of conscience or some other basis.

As Canfor points out, nothing in the Rules of the British Columbia International Commercial Arbitration Centre for the Conduct of Domestic Commercial Arbitrations specifically confers jurisdiction on an arbitrator to award punitive damages. Section 29 of those Rules does authorize an arbitration tribunal to make an award ordering specific performance, rectification, injunctions and other equitable remedies. While it confers jurisdiction to grant relief which would preserve property or “make whole” a wronged party, nothing in s. 29 of the Domestic Commercial Arbitration Rules authorizes an arbitrator to punish the other party to a dispute.

Canfor contends that there is an important distinction between an arbitrator’s jurisdiction to grant remedies which are intended to compensate a party for breach of contract, and the power to impose punitive measures. The licence holder submits that, in the absence of any express language conferring such jurisdiction, in the dispute resolution provisions of the contract, the Regulation, the Commercial Arbitration Act, or the Domestic Commercial Arbitration Rules, the imposition of measures intended to punish a party is a matter solely within the purview of the Courts. Canfor also argues that the decision of the Supreme Court of Canada in Weber v. Ontario Hydro [1995] 2 SCR 929, where it was held that s. 45(1) of the Ontario Labour Relations Act conferred jurisdiction on labour arbitrators to hear certain tort claims, deals with the specialized jurisdiction of labour arbitrators operating under a collective bargaining regime, and cannot readily be applied to commercial arbitrations. The licence holder also draws a distinction between an arbitrator’s jurisdiction to hear a dispute and his or her powers to award particular remedies.

JMS responds that the jurisdiction of an arbitrator, under both the contract between the parties and s. 5 of the Regulation, to hear “all disputes that have arisen or may arise between the parties to the contract ... under or in connection with the contract”, is broad enough to confer authority upon an arbitrator to award punitive damages. JMS relies upon Weber v. Ontario Hydro, supra. There, the Supreme Court of Canada held that the applicable test was whether the dispute between the parties, in its essential character, arose out of the collective agreement. The contractor argues that in proceedings under the Regulation, the question becomes whether the dispute in its essential character “arises under or in connection with the contract”. JMS contends that the conduct of Canfor of which it complains was connected to the contract.

In short, JMS maintains, relying upon Weber v. Ontario Hydro, supra, that once a dispute is shown to arise between the parties to the contract, and can properly be characterized as a dispute arising under or in connection with the contract, then the arbitrator has jurisdiction to hear the dispute, and may fashion a remedy according to the law.

Weber v. ontario hydro

In Weber, supra, the Supreme Court of Canada considered the jurisdiction of an arbitration board under s. 45(1) of the Ontario Labour Relations Act, which provides that every collective agreement “shall provide for the final and binding settlement by arbitration ... of all differences between the parties arising from the interpretation, application, administration, or alleged violation of the agreement.” The Court held that s. 45 conferred exclusive jurisdiction on an arbitrator where the difference between the parties arose from the collective agreement.

McLachlin, J., rejecting the argument that a labour arbitrator and a court had concurrent jurisdiction to hear tort claims, referred, at paragraph 41 of her reasons, to St. Anne Nackawic Pulp and Paper Co. v. Canadian Paper Workers Union, Local 219 [1986] 1 SCR 704. There, the Supreme Court of Canada held that to allow concurrent actions in the courts would undermine the purpose of labour relations legislation, which provided a code governing all aspects of labour relations, and would also be contrary to the principle of judicial deference to the labour arbitration process. In St. Anne Nackawic, supra, Estey, J., at p. 721, characterized labour relations legislation as a comprehensive statutory scheme designed to govern all aspects of the relations between the parties in a labour relations setting.

In adopting the exclusive jurisdiction model, McLachlin, J. stated the test for determining when a labour arbitrator had jurisdiction to hear a particular dispute as follows:

The question in each case is whether the dispute, in its essential character, arises from the interpretation, application, administration or violation of the collective agreement.

The Court went on to state that the concern that arbitrators might lack the legal power to consider the issues before them was answered by the power and duty of arbitrators to apply the law of the land to the disputes before them. At paragraph 56, McLachlin, J. held:

56. To this end, arbitrators may refer to both the common law and statutes: St. Anne Nackawic; McLeod v. Egan [1975] 1 SCR 517. As Denning, L.J. put it, “[t]here is not one law for arbitrators and another for the court, but one law for all”: David Taylor & Son, Ltd. v. Barnett [1953] 1 All ER 843 (CA) at p. 847.

However, McLachlin, J. stated at paragraph 57 of her reasons that it might occur that a remedy is required which the arbitrator is not empowered to grant. In such cases, the courts of inherent jurisdiction in each province may take jurisdiction.

At paragraph 61, the Court addressed the question of whether a labour arbitrator had the power to grant the particular remedies sought by the grievor:

61. This brings us to the question of whether a labour arbitrator in this case has the power to grant Charter remedies. The remedies claimed are damages and a declaration. The power and duty of arbitrators to apply the law extends to the Charter, an essential part of the law in Canada: Douglas/Kwantlen Faculty Assn. v. Douglas College, supra; Cuddy Chicks Ltd. v. Ontario (Labour Relations Board) [1991] 2 SCR 5; Re Ontario Council of Regents for Colleges of Applied Arts & Technology and Ontario Public Service Employees Union (1986) 24 LAC (3d) 144. In applying the law of the land to disputes before them, be it the common law, statute law or the Charter, arbitrators may grant such remedies as the Legislature or Parliament has empowered them to grant in the circumstances. For example, a labour arbitrator can consider the Charter, find laws inoperative for conflict with it, and go on to grant remedies in the exercise of his powers under the Labour Code: Douglas Kwantlen Faculty Assn. v. Douglas College, supra. If an arbitrator can find a law violative of the Charter, it would seem he or she can determine whether conduct in the administration of the collective agreement violates the Charter and likewise grant remedies.

(emphasis added)

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Because Weber v. Ontario Hydro, supra, deals with the jurisdiction of labour arbitrators operating under comprehensive labour relations statutes, and a specialized collective bargaining dispute resolution process to which the courts have for many years shown considerable deference, it has no direct application to commercial arbitrations under the Regulation.

In Hayes Forest Services Ltd. v. Pacific Forest Products Ltd. 2000 BCCA 66, Finch, J. A., at para. 17, adopted John Forstrom’s description of the policy underlying the Regulation:

... In this context, the evolving policy behind the Regulation has been directed at:

(1) protecting the contract logging community generally by preserving its source of work;

(2) redressing the imbalance of bargaining power experienced by individual contractors as a result of their dependent relationship upon licence holders.

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To give effect to that policy, the Regulation provides for replaceable contracts and subcontracts, provides standard provisions which must be included in such contracts, and for the mandatory mediation and arbitration of disputes. The Regulation substantially restricts the freedom of contract of licence holders and contractors: Troubridge Towing Co. v. Fletcher Challenge Canada Ltd. [1996] BCJ No. 669 (BCSC). Although the Regulation establishes distinct rules for the resolution of amount of work and rate disputes, it deals with commercial relationships. Furthermore, tort claims of the kind advanced in these proceedings are, in their essential elements, no different from those which the courts hear on a regular basis. Accordingly, the arbitral process established under the Regulation may not attract the same degree of judicial deference as the labour arbitration process.

Furthermore, while in an appropriate case, the exercise of arbitral power to fully compensate an aggrieved party may be necessary to achieve the policy objective of redressing the imbalance of bargaining power between a licence holder and a contractor, it cannot be said that over-compensation, by an award of punitive damages, is necessary to the attainment of that objective.

Even though Weber v. Ontario Hydro, supra, has no direct application to commercial arbitrations, given the broad similarities between s. 45(1) of the Ontario Labour Relations Act and s. 5 of the Regulation, the Weber test may be adapted to determine whether a particular dispute is within the jurisdiction of an arbitrator. If a dispute is properly characterized as one arising “under or in connection with the contract”, then an arbitrator exercising the powers conferred by the Regulation and the Commercial Arbitration Act has jurisdiction to hear that dispute.

Although the Regulation defines amount of work disputes and rate disputes, it contains no definition of the term “dispute”.

In Black’s Law Dictionary, 7th Ed. (1999), “dispute” is defined as:

dispute, n. a conflict or controversy, esp. one that has given rise to a particular lawsuit.

The conflict or controversy refers to the events and conduct giving rise to the “cause of action”, as distinct from the remedies sought by the aggrieved party. Thus, if the conflict or controversy between the parties giving rise to the claim, in its essential character, can be said to arise under or in connection with the contract, then an arbitrator has jurisdiction to hear the dispute.

However, in my view, it is clear from paragraphs 57 and 61 of Weber v. Ontario Hydro, supra, to which I have previously referred at paragraphs 26 and 27 of this award, that an arbitrator must have not only the jurisdiction to hear the dispute, but also jurisdiction to award the remedy sought. Jurisdiction over the subject matter of the conflict or controversy does not necessarily confer jurisdiction to award all of the remedies that a claimant may seek in relation to the dispute.

It is on this point that I respectfully part company with Arbitrator Alvarez.

PRELIMINARY AWARD OF ARBITRATOR ALVAREZ in JOE mARTIN & sONS lTD. V. CARRIER LUMBER LTD.

Canfor submits that Arbitrator Alvarez decided the jurisdictional question in his case per incuriam. It argues that he did not have the benefit of full submissions on the difference between an arbitrator’s jurisdiction to hear a dispute, and his or her jurisdiction to award particular remedies, or upon the distinction between an arbitrator’s authority to compensate, and any power to punish.

In Joe Martin & Sons Ltd. v. Carrier Lumber Ltd., Arbitrator Alvarez made the following findings with respect to his jurisdiction to hear the claim for punitive damages before him:

In its claim number 7, the Claimant alleges, in essence, that the Respondent engaged in an abuse of the process under the Regulation to put the Claimant in a vulnerable economic situation and drive it out of business. The Claimant says that this alleged breach of process has forced the Claimant to return its Agreement, a Replaceable Volume Contract under the Regulation, to the Respondent in return for a sum of money. The Claimant alleges it was forced to sell its equipment at a loss and that it also lost the value of its business as a going concern. As part of the alleged abuse of process, the Claimant alleges that the Respondent failed to act reasonably or in good faith in the negotiation of rates under the Agreement generally and, more specifically, for the 1999/2000 winter season. The Claimant makes a number of specific allegations and has presented witness statements in support of these allegations.

On the basis of the evidence and arguments currently available to me, the Claimant’s claims of abuse of process and failure to act reasonably or in good faith in accordance with the requirements of the Regulation appear to arise under or in connection with the Agreement between the Parties and, therefore, fall within the scope of my jurisdiction. The relationship between the Parties arises from the Agreement between them and the allegations in question relate to the negotiation and fixing of rates under that Agreement and the rights and obligations arising under that Agreement more generally. The dispute between the Parties in regard of these allegations, in its essential character, appears to arise under or in connection with the Agreement between the Parties. Although the evidence to be submitted by the Respondent in due course and the testing of each Party’s case at the hearing may affect this conclusion, there is no basis at this stage of the proceedings to exclude the allegations contained in the Claimant’s claim number 7 from the scope of the matters submitted to arbitration in this case.

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He then held:

In these circumstances, clear language would be required to exclude only certain, related, disputes from the general scope of disputes submitted to arbitration. No such clear language is evidence in the Regulation.

With respect to the remedy of punitive damages, Section 23 of the Commercial Arbitration Act requires arbitrators to adjudicate disputes before them by reference to law. In the context of disputes such as those covered by the Regulation, the law in question is the law of British Columbia. In the context of a domestic commercial arbitration, the Court of Appeal held in Westcoast Transmission Company Limited v. Majestic Wiley Contractors Ltd. (1982), 38 BCLR 310 at 316 as follows:

The arbitrators are to decide the dispute according to the existing law of contract and every right and discretionary remedy given to a court of law can be exercised by them. I think for that reason that after the coming into force of the Court Order Interest Act, in this jurisdiction, an arbitrator had the power conferred on the appropriate court in that Act. I do not say that arbitrators are, or are not, bound to award interest. Nor do I say that they are, or are not, limited to do anything that a court could do. Those questions can be answered when they arise. I am content in this case to say that I reject the Appellant’s contention that the arbitrators could not award interest.

In my view the same reasoning applies to the question of punitive damages in this case. Punitive damages form part of the law of British Columbia and, as such, may be applied by arbitrators unless their jurisdiction to grant such a remedy is limited by the relevant arbitration agreement or statute referring the matter to arbitration. This by no means indicates that arbitrators are required to award punitive damages which, I note, the authorities relied upon by both parties indicated are appropriate only in certain limited circumstances.

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Arbitrator Alvarez then distinguished the decision of the British Columbia Supreme Court in Lee v. Gao (1992) 65 BCLR (2d) 294, where it was held that an arbitrator appointed under the Residential Tenancy Act, SBC 1984, c. 15, did not have authority to award punitive damages. He distinguished that case on the ground that the Residential Tenancy Act only gave arbitrators a limited jurisdiction to decide certain disputes, whereas under the Regulation, an arbitrator may hear “all disputes that have arisen or may arise between the parties to the contract ... under or in connection with the contract ...”.

Arbitrator Alvarez also found that while Weber was not directly applicable, the approach taken there by the Supreme Court of Canada was highly persuasive. At paragraph 31, he observed that the broad scope of disputes submitted to arbitration under the Regulation is similar to the scope of jurisdiction given to arbitrators under the labour statutes considered in Weber and the cases which followed it.

DISCUSSION

While I agree with much of Arbitrator Alvarez’s analysis, I do, respectfully, disagree with him on his conclusion regarding an arbitrator’s jurisdiction to award punitive damages. I have had the benefit of careful submissions from counsel for both Canfor and JMS on the question of whether, absent an express grant of authority, an arbitrator has any jurisdiction to impose remedies intended to punish, rather than to compensate. That point does not appear to have been fully argued before Arbitrator Alvarez. It also appears that counsel have cited a number of authorities to me which may not have been brought to the attention of Arbitrator Alvarez, including the judgements of the British Columbia Supreme Court and Court of Appeal in Ridley Terminals Inc. v. Minette Bay Ship Docking Ltd. et al (1989) 40 BCLR (2d) 115 (BCSC); affirmed (1990) 45 BCLR (2d) 367 (BCCA). I have concluded that even if I assume, as I am asked to do for the purposes of this application, that an arbitrator appointed to hear disputes arising under the Regulation has jurisdiction to hear tort claims, nothing in the Regulation, the Commercial Arbitration Act, or the Domestic Commercial Arbitration Rules confers jurisdiction to award the extraordinary remedy of punitive damages.

There is no express grant of jurisdiction to award punitive damages, or indeed to impose any measure intended to punish one party to the contract.

Arbitrator Alvarez found that the statutory direction to an arbitrator contained in s. 23 of the Commercial Arbitration Act to decide the matter before the arbitrator “by reference to law” authorizes an arbitrator to apply the law of British Columbia generally, including the law of punitive damages.

I disagree. In Weber v. Ontario Hydro, supra, at paras. 57 and 61, the Court observed that situations might arise where even though the arbitrator had jurisdiction over the subject matter of the dispute, his or her enabling legislation did not confer jurisdiction to award a particular remedy, in which case, the parties would have recourse to the courts.

In my view, something more than the general direction that an arbitrator decide cases according to law, as is set out in s. 23 of the Commercial Arbitration Act, is required to confer jurisdiction to impose punitive measures.

Although Arbitrator Alvarez distinguished Lee, supra on the ground that an arbitrator hearing disputes under the Residential Tenancy Act had a much more limited jurisdiction than an arbitrator appointed under the Regulation, he did not address the fundamental difference between the authority to award compensation and the power to inflict punishment, which Thackray, J. emphasized in his judgement in Lee.

At p. 304, para. 49, Thackray, J. referred to the decision of Mr. Justice McIntyre in Vorvis v. ICBC [1989] 1 SCR 1085, who began his description of the circumstances in which punitive damages may be awarded by stating:

49. When, then, can punitive damages be awarded? It must never be forgotten that when awarded by a judge or jury, a punishment is imposed upon a person by a court by the operation of the judicial process.

For an award of punitive damages to be made, the claimant must establish first that the defendant committed an independent actionable wrong which caused damage to the claimant, and second that the defendant’s conduct was so harsh, vindictive, reprehensible or malicious to be deserving of punishment: Whiten v. Pilot Insurance Co. et al (1999) 42 OR (3d) 641 (Ont. CA.)

In Allan Estate v. Cooperators Life Insurance Co. (1999) 62 BCLR (3d) 329 (BCCA), Lambert, J.A., at para. 69, held:

It is important to remember that the purpose of punitive damages is to punish the defendant. An award of punitive damages is a mark of the court’s disapprobation and condemnation of the plaintiff’s conduct. ... It is particularly in cases where the compensatory damages do not adequately express the court’s disapprobation and condemnation of the defendant’s conduct that punitive damages should be awarded. See Huff v. Price (1990) 51 BCLR (2d) 282 (BCCA) at 298-302.

In Lee v. Gao, supra, Thackray, J. found that the power of an arbitrator under s. 41 of the Residential Tenancy Act, 1984 to “exercise the jurisdiction of a court” in certain narrow and well-defined situations was not sufficient to confer jurisdiction to award punitive damages. At para. 55, he concluded that nothing in the Residential Tenancy Act contemplated anointing an arbitrator with punitive powers.

At para. 61, Thackray, J. stated:

61. The concept which I believe is reflected in the legislation is to bestow the power to compensate to the extent that the aggrieved party is made whole (in tort) or fully compensated (in contract). Punitive damages overcompensate the aggrieved party and punish the guilty party. This is not within the wording, principles nor social philosophy which I see in the empowering legislation.

In OCAW v. Polymer Corp. (1959) 10 LAC 51, Professor Bora Laskin, as he then was, drew the same distinction between the power of an arbitration board to award damages, and to impose a penalty.

At p. 57, he stated:

It is desirable at this point to point up a distinction between the imposition of penalties and the award of damages. It is a decision taken, and in this Board’s view, properly taken, in the award in Re UAW and CCM (1951) 3 LAB. Arb. CAS837. This Board, sitting as a civil tribunal to resolve contract interpretation disputes, has no punitive function but is charged only with redressing private wrongs arising from breach of obligations assumed as a result of negotiation. The Board’s remedial authority, if it has any, must be addressed to the vindication of violated rights by putting the innocent party, so far as can reasonably be done, in the position in which he or it would be if the particular rights had not been violated. The redress, if any can be given, must be suited to or measured by the wrong done. A Board of arbitration is not, however, a criminal court. True enough, it may play a role in passing upon or modifying a penalty imposed by an employer as a matter of discipline, but in so doing, it is merely assessing the permissible limits of employer action taken under the collective agreement and not fashioning a penalty to reward an innocent party.

The learned authors of Brown & Beatty, Canadian Labour Arbitration, 3rd ed., Loose-Leaf Edition, 2001, note that labour arbitrators have generally held that they do not have the authority to assess punitive damages.

In Ridley Terminals Inc. v. Minette Bay Ship Docking Ltd. et al (1989) 40 BCLR (2d) 115, at p. 120, Maczko, J., found that there was nothing in the Commercial Arbitration Act which conferred power on an arbitrator to award solicitor and own client costs. He held:

My conclusion is that costs as used in the agreement and in the Commercial Arbitration Act means costs as could be awarded by the court. If an arbitration board is to have the unusual power to award solicitor-own-client costs, either the legislation or the agreement between the parties would have to say so very specifically.

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His decision was upheld on appeal: Ridley Terminals Inc. v. Minette Bay Ship Docking et al (1990) 45 BCLR (2d) 367 (BCCA).

Awards of solicitor and own client costs, or of special costs, serve as a sanction against a party for misconduct during the course of the proceedings, while punitive damages are intended to punish a wrongdoer for high-handed, vindictive or malicious pre-litigation conduct: British Columbia (Provincial Court Judge) v. British Columbia (1997) 40 BCLR (3d) 289 (BCSC). An award of special costs involves an element of punishment and deterrence for reprehensible conduct in the course of litigation: Fullerton v. District of Matsqui (1992) 74 BCLR (2d) 305 (BCCA). Thus, while Ridley Terminals Inc. v. Minette Bay Ship Docking Ltd. et al, supra, deals with arbitral authority to award solicitor and own client costs rather than punitive damages, it provides persuasive support for the proposition that absent an express grant of authority to impose punitive measures, an arbitrator, exercising powers under the Commercial Arbitration Act, has no jurisdiction to do so.

Furthermore, in my view, there are some additional factors which, in the absence of any express grant of authority, militate against an arbitrator having jurisdiction to award punitive damages. As Thackray, J., commented in Lee, supra, at p. 306, there is the potential for inconsistency in the imposition of punitive measures if arbitrators, and particularly those without any legal training, exercise the power to award punitive damages. More significantly, claims for punitive damages frequently involve complex and highly disputed factual issues. In civil litigation, the discovery process allows for those claims to be fully examined and tested before they come to trial. There is no oral discovery as of right under the Regulation or the Domestic Commercial Arbitration Rules. Although claims for punitive damages will only rarely arise, in those cases where they do, and particularly in the absence of pre-hearing oral discoveries, they have the potential to substantially prolong the arbitration, and to undermine one of the objectives of the dispute resolution process, which is the just, speedy and economical determination of proceedings. Finally, s. 26(3) of the Domestic Commercial Arbitration Rules provides that in deciding issues of relevance and materiality of evidence, an arbitration tribunal is not be required to apply the rules of evidence. I do not believe, that in adopting the Regulation, the Lieutenant Governor-in-Council could have intended to confer punitive powers under a dispute resolution scheme where the rules of evidence are relaxed.

DECISION AND AWARD

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I have concluded that in the absence of either an agreement by the parties or the express grant of jurisdiction under the Regulation or the Commercial Arbitration Act, I have no power to award punitive damages. Accordingly, I grant the order sought by Canfor on this application.

Counsel may speak to the costs of this application at the conclusion of the rate arbitration hearing.

Finally, should it subsequently be determined that my ruling on jurisdiction to award punitive damages is incorrect, and JMS’ claims for punitive damages in this arbitration proceed, I wish to repeat two points which I have previously raised with counsel for the parties.

First, given the overlap between the claims advanced by JMS against Carrier Lumber Ltd. in the proceedings before Arbitrator Alvarez, and the claims for punitive damages against Canfor in this proceeding, based on conspiracy to cause economic harm, I have suggested that the parties should carefully consider having the tort claims in both arbitrations heard together by a single arbitrator. If all parties agreed to do so, it might well reduce the expense of these proceedings, and avoid the potential for inconsistent findings of fact on the same or closely related issues in two separate proceedings. If the tort claims were heard together, Canfor and Carrier would then have the status of parties able to fully participate in the hearing of all aspects of the tort claims relating to them in each proceeding.

Secondly, if the claim of JMS for punitive damages against Canfor does proceed, I anticipate that representatives of Carrier Lumber Ltd. would be called as witnesses concerning the alleged conspiracy between Carrier and Canfor to cause harm to JMS. Even though JMS claims no remedy against Carrier in this proceeding, in light of my continuing role as counsel in another matter involving Carrier Lumber Ltd., it would not be appropriate for me to make findings of fact concerning the conduct of Carrier Lumber Ltd., or the credibility of its representatives, in these proceedings. I have, therefore, recommended to the parties that should the tort claims proceed in this case, the better course may be for Arbitrator Alvarez to hear all of those claims. I have encouraged counsel for Canfor and JMS to discuss this matter with counsel for Carrier Lumber Ltd.

DATED at the City of Victoria, this 29th day of August, 2001.

___________________________________

PAUL J. PEARLMAN, Q.C.

Arbitrator

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