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The Court of Appeal for British Columbia’s ruling in Bollhorn v. Lakehouse Custom Homes Ltd., 2023 BCCA 444 brings attention to a potential gap in the domestic arbitration scheme, stemming from the combined effect of the Arbitration Act (BC) (the Act) and the Vancouver International Arbitration Centre’s (VanIAC) Domestic Rules for Arbitration (the Rules). Mr. Bollhorn sought leave to appeal an arbitrator’s decision under the appeal mechanism of the Act over a dispute with Lakehouse Custom Homes Ltd. (Lakehouse) over alleged construction deficiencies.

The parties entered into a contract for the construction of a house in 2021. The contract included an arbitration clause. In early 2022, when Lakehouse refused to complete the contract due to changes in the contract’s specifications and disagreement on the costs of those changes, Mr. Bollhorn brought an action in the British Columbia Supreme Court for specific performance. During the court hearing, he anticipated deficiencies that he said required rectification. The Court ruled in Mr. Bullhorn’s his favour and granted his request for specific performance.

When the deficiencies were not rectified to his satisfaction, Mr. Bullhorn filed a Notice to Arbitrate with VanIAC. He sought a determination of the deficiencies identified in the walk‑through, quantification of the cost to him of remedying such deficiencies, and certain orders concerning payment. On July 30, 2023, the arbitrator dismissed the arbitration on the basis that it was barred by the doctrine of res judicata. The arbitrator held that Mr. Bollhorn had already raised his claim of deficiencies in the Supreme Court proceedings.

Mr. Bollhorn sought leave to appeal the arbitrator’s decision under the Act. He argued that the arbitrator erred in law when he dismissed his arbitration claim on the basis of res judicata, because his Supreme Court action did not advance a claim for construction deficiencies and the contract assigned disputes over deficiencies exclusively to arbitration. In response, Lakehouse argued that even if Mr. Bollhorn was correct, the Court could not hear the appeal because the Rules prohibit parties from appealing an arbitrator’s decision for disputes not exceeding $250,000.

Although the Act limits generally restricts the court’s involvement in domestic arbitrations under section 4(a), a party to arbitration may seek leave to appeal to the Court of Appeal on any question of law arising out of an arbitral award under section 59(3). Rule 27(a) under Part B of the Rules stipulates that there is no appeal on questions of law from an award arising for disputes not exceeding $250,000, unless otherwise consented to by both parties. Mr. Bollhorn’s claim was approximately $95,000.

After the hearing of the leave to appeal application, Madam Justice Saunders requested and received submissions from the parties on the character of the arbitrator’s decision as an “award”. She considered these submissions in reviewing the Act and materials filed.

Madam Justice Saunders wrote in the decision at paragraphs 11 and 12 the following:

[11]    There is considerable force, in my view, to Mr. Bollhorn’s assertion of an error of law in the application of res judicata:

  1. the deficiency walk‑through followed well after the court hearing of the claim for specific performance;
  2. the contract assigns disputes about deficiencies exclusively to arbitration;
  3. the court pleadings do not appear to advance a claim for deficiencies; and
  4. the court order addressed only two substantive issues – title to the property, and the markup and taxes payable to Lakehouse on the change orders.

[12]   There is also considerable force, in my view, to Lakehouse’s assertion that the arbitration scheme does not allow for an appeal, even in these circumstances.

She found at paragraph 22 that the parties, through their submissions, revealed a gap in the domestic arbitration scheme, indicating that “in the event Mr. Bollhorn is correct that the application of res judicata was an error of law, and Lakehouse is correct that the decision cannot be appealed, Mr. Bollhorn’s claim under his contract will not have been heard on its merits, contrary to the expectation implicit in the contract’s arbitration clause. Further, in that event, depending on whether the decision is an “award”, no other forum may be available to him because the contract assigns this dispute exclusively to arbitration.”

Madam Justice Saunders referred the application for leave to appeal to a division of the court. While we wait for a decision, we are left with this unresolved issue in the gap of the arbitration schemes.