



COURT 
    OF APPEAL FOR BRITISH COLUMBIA




Citation:


Hayes 
          Forest Services Limited v. Weyerhaeuser Company Limited,







2008 
          BCCA 31



Date: 20080124

Docket: CA034652

Between:

Hayes 
    Forest Services Limited

Respondent

(
Petitioner
)

And

Weyerhaeuser 
    Company Limited

Appellant

(
Respondent
)




Before:


The 
          Honourable Mr. Justice Low




The 
          Honourable Mr. Justice Lowry




The 
          Honourable Mr. Justice Chiasson








J. 
          Hunter, Q.C. and K.M. Stephens


Counsel for the Appellant




C.F. 
          Willms and K.A. Grist


Counsel for the Respondent




Place 
          and Date of Hearing:


Vancouver, British Columbia




5 November 2007




Place 
          and Date of Judgment:


Vancouver, British Columbia




24 January 2008








Written 
          Reasons by
:




The 
          Honourable Mr. Justice Chiasson




Concurred 
          in by:




The 
          Honourable Mr. Justice Low
The Honourable Mr. Justice Lowry



Reasons 
    for Judgment of the Honourable Mr. Justice Chiasson:

Introduction

[1]

Commercial arbitration is a private 
    dispute resolution process designed to enable parties to deal with disputes 
    efficiently, effectively and economically.  In this case, applicable legislation 
    is the
Commercial Arbitration Act
, R.S.B.C. 1996, c. 55 (the 
    
Act
).  Although the
Act
provides in s. 14 that 
    arbitral awards are final and binding on all parties, s. 31 gives parties 
    a right to appeal to the court any question of law arising out of the award, 
    either by agreement or with leave of the court.  Section 32 contains a limited 
    privative clause.

[2]

The parties expressed clearly their 
    intention to resolve disputes efficiently and effectively by agreeing to arbitrate 
    before a single arbitrator to be selected from an agreed list of named persons.  
    The arbitrator was required to deliver an award within 30 days of his appointment.  
    An award was delivered on 10 June 2005.  This appeal from the decision of 
    Mr. Justice Cullen setting aside the award was heard on 5 November 2007, over 
    two years after the award was made.  His reasons are found at 2006 BCSC 1783, 
    24 B.C.L.R. (4th) 291.

[3]

It is ironic and cause for thought that 
    in recommending appeals be taken to the Supreme Court rather than the Court 
    of Appeal, the Law Reform Commission of British Columbia had this to say in 
    its
Report on Arbitration
(Report 55) (Vancouver:  Law Reform 
    Commission of British Columbia, May 1982) at 78:

Despite 
    the foregoingwe have decided that the Supreme Court is the more appropriate 
    forum to hear in the first instance appeals from arbitration awards.  Whatever 
    advantages there may be in appeals direct to the Court of Appeal, there are 
    also a number of disadvantages that, in our view, militate against that approach.  
    One of the principal disadvantages is the time that it takes for a matter 
    to come before the Court of Appeal.  We understand that on average it now 
    takes about three months before a matter can be heard in that Court.  In contrast, 
    a matter can be brought before a Chambers Judge of the Supreme Court in two 
    or three weeks or sooner in cases of urgency.

[4]

In my view, a core value of the arbitration 
    process  the efficient and effective resolution of private disputes  has 
    been lost in this case, in part, because rather than simply ensuring the rights 
    of the parties were determined on sound legal principles, the court usurped 
    the function of the arbitrator and exceeded the authority granted to it by 
    s. 31 of the
Act
.  The path to this error began with the questions 
    for which leave to appeal was granted.  This appeal engages a consideration 
    of the role and scope of judicial review of arbitral awards under the
Act
. 
     For the reasons that follow, I would allow this appeal and dismiss Hayes 
    appeal from the arbitrators decision.

Background

[5]

Weyerhaeuser Company Limited (Weyerhaeuser 
    or WCL) and Hayes Forest Services Limited (Hayes) entered into a Timber 
    Supply Execution Agreement made 2 January 2003.  It contained a commitment 
    to arbitrate.  As noted, the process for selecting an arbitrator and the timing 
    of the proceeding was specified.  The parties agreed that the decision of 
    the arbitrator would be final and binding on them.  Hayes initiated arbitration.  
    A hearing was held on 30, 31 May and 1 June 2005.  The arbitrators award 
    was delivered 10 June 2005.  At the request of the parties, the arbitrator 
    held a further hearing on 29 June 2005 and made a further ruling on 14 July 
    2005.  Dissatisfied with the award, Hayes petitioned the court on 8 August 
    2005 for leave to appeal.  The petition was amended on 22 March 2006 and leave 
    was granted on 24 March 2006.  The appeal was heard on 17 and 18 July 2006. 
     The reasons of Cullen J. were pronounced 4 December 2006.  Weyerhaeuser appealed 
    to this Court on 12 December 2006.

[6]

Weyerhaeuser is the holder of a Tree 
    Farm Licence which included an inefficient operating area.  The Agreement 
    provides for Hayes to manage and perform timber harvesting in the operating 
    area.  Hayes is paid its actual audited costs and a percentage of a gain, 
    which is defined as the cost improvements and quality improvements made by 
    Hayes.  Simplistically, the gain is the amount by which agreed Baseline Costs 
    exceed actual costs.  The lower the actual costs, the higher the gain.

[7]

The core of the dispute is the accounting 
    treatment of planning, engineering, road building (other than Capital Roads) 
    and other forest development costs in the calculation of the gain.  It is 
    the position of Weyerhaeuser that such costs should be expensed in the year 
    in which they are incurred.  Hayes contends that such costs should be expensed 
    when the timber for which such costs are incurred is harvested and they can 
    be carried in inventory until then.  The effect of Hayes position is to 
    reduce the actual costs for the year and thereby increase the gain.  The arbitrator 
    rejected Hayes position.  He also held the parties settled all outstanding 
    2003 issues, a conclusion which Hayes challenged.

The leave to appeal decision

[8]

Hayes proposed three questions:

1.         
    On a true consideration of s. 11. 4(a) of the TSE, must Hayes expense all 
    planning, engineering, road building (other than capital roads) and other 
    forest development costs which result from a material change in volume of 
    timber accessible and ready for logging in the year in which they are incurred? 
    (This is referred to as the accounting treatment issue.)

2.         
    In the alternative, if on a true construction of s. 11 4(a) of the TSE, Hayes 
    is required to expense all development inventory, planning, engineering, road 
    building other than capital roads and the other forest development costs which 
    result from a material change in volume of timber accessible and ready for 
    logging in the year in which they are incurred, on a true construction of 
    Explanatory Note 2 to Schedule 7 of the TSE, should a significant or material 
    change in these costs be administered or handled as a prescribed event under 
    the TSE?  (This is referred to as the prescribed event issue.)

3.         
    In determining that the 2003 settlement entitled Hayes to payment of actual 
    audited costs of $73.49 per cubic metre rather than $75.02 per cubic metre, 
    did the arbitrator act on a view of the facts which could not be reasonably 
    entertained?  (That is the settlement issue.)

[9]

In her judgment (indexed as 2006 BCSC 
    2045) Madam Justice Brown identified as the first issue whether the questions 
    were questions of law.

[10]

Weyerhaeuser asserted that the questions 
    proposed by Hayes were highly infused with findings of fact and were questions 
    of mixed fact and law for which leave to appeal could not be granted.  After 
    referring to
Macmillan Bloedel v. British Columbia Hydro and Power Authority
(1992), 98 D.L.R. (4th) 492, 72 B.C.L.R. (2d) 273 (C.A.) and
Glaswegian 
    Enterprises Inc. v. Tel Mobility Cellular Inc.
(1997), 101 B.C.A.C. 
    62, 49 B.C.L.R. (3d) 317, Brown J. stated in paras. 13 - 14:

Here, 
    the arbitrator made reference to a good deal of the evidence in interpreting 
    the contract.  However, that does not detract from the essential question. 
     As Madam Justice Southin said in
B.C. v. Surrey School District
, [2005] 
    B.C.C.A. 106.  A question of construction of a written agreement is, of course, 
    a question of law.

The 
    arbitrator may have erred in his interpretation of the contract, as the petitioner 
    argues, by failing to give effect to portions of the contract.  He may have 
    relied inappropriately on the factual matrix, rather than the words of the 
    contract.  That the arbitrator looked to the background facts in interpreting 
    the contract does not make interpreting the contract necessarily a question 
    of mixed fact and law, preventing an appeal from an arbitrators decision.

[11]

In the result, Brown J. concluded that 
    leave should be granted on the questions proposed by Hayes.  Weyerhaeuser 
    did not take steps to appeal that decision.

The Chambers decision on the appeal

[12]

Mr. Justice Cullen set out a number 
    of provisions of the Agreement.  They included:

1.1 
    Definitions.
[]

(a)        
    Actual Audited Costs for a particular Year means:

(i)         the actual audited costs incurred directly or properly allocated 
    to the Franklin Operation by Hayes for such year calculated on a consistent 
    basis Year to Year in accordance with GAAP []

[]

(c)        
    Baseline Costs for the Year 2003 will be equal to $76.75 per cubic meter 
    harvested (being the baseline cost or actual experienced costs in TFL 44 for 
    the 21-month period ending September 30, 2002, plus the three month forecast 
    for the period to end December 31, 2002 [...]) []

[]

(o)        
    Development Inventory means the inventory of planning, Engineering, roads 
    and infrastructure in the Operating Area from time to time as described in 
    Section 11.4;

[]

(z)       
    GAAP means generally accepted accounting principles adopted for use in Canada 
    by the Canadian Institute of Chartered Accountants, consistently applied;

[]

(oo)     
    Prescribed Event means:

(i)         
    a material event outside the control of Hayes; [...]

[...]

1.2       
    Purpose and Interpretation
.  The 
    purpose of this Agreement is to enable Hayes to use its expertise in forestry 
    planning and timber harvesting to improve the efficiency and cost of operations 
    in the Operating Area such that Weyerhaeuser will realize a cost savings for 
    logs delivered to Weyerhaeuser by Hayes from the Operating Area as compared 
    to the Baseline Cost []

[...]

(b)        
    this Agreement will be applied and interpreted by the Parties from time to 
    time with a view to achieving the foregoing purpose;

[...]

1.9       
    Schedules
.  The following are the Schedules to this Agreement 
    and form part of the Agreement:

[...]

Schedule 
    7      Sample Development Inventory Advance Calculations;

[...]

Schedule 7

to Timber Supply Execution Agreement

Sample Development Inventory Advance Calculation

(Section 11.4)

Explanatory 
    Notes

1.         
    All calculation examples in Schedule 7 are prepared for the purpose of generating 
    a monthly working capital advance for Hayes and only for that purpose.

2.         
    Development costs related to development such as planning and engineering 
    (Section 11.4(a)).  Significant or material change, on an annual basis will 
    be dealt with as a Prescribed Event.  All development costs incurred in the 
    year, will be expensed in the same year as is the current Weyerhaeuser Standard 
    Accounting Practice.  For further clarity, this is the same method utilized 
    in Baseline Cost calculation. [.]

[13]

I refer at length to Mr. Justice Cullens 
    review of the arbitral award as it concerned the accounting treatment of development 
    costs in order to place into context the questions and to illustrate the judges 
    analysis of this issue:

[20]      
    The core of the dispute between the parties stems from the provisions of ss. 10.4 
    and 11.4 and Explanatory Note 2 of Schedule 7 to the TSE.  These provisions 
    raise the issue of whether certain costs incurred by Hayes in planning, engineering 
    and spur road building, are properly accounted for as inventory or as costs 
    under the TSE using GAAP principles applied consistently, or whether they 
    are to be treated as a Prescribed Event adjusting the baseline costs.  The 
    Arbitrator framed the issue before him thus:

The central 
    issue is simply this:  Weyerha[e]user says expenditures for spur roads and 
    planning and engineering are to be treated as costs and expensed in the year 
    the particular work is done.  Hayes on the other hand says expenditures for 
    the work should be recorded as inventory until the work bears fruit, or in 
    other words, until some later time when the logs which are linked to the work 
    in question are ready for market.

This question 
    of accounting would seem unimportant to a casual observer, but it has led 
    to a difference in the parties positions for 2003 and 2004, totalling more 
    than $5 million.

Although 
    not explicitly stated, it is clear the Arbitrator accepted that under the 
    inventory system when taken out of inventory and treated as expenses, the 
    planning, engineering and spur road building costs would be included in the 
    actual audited costs for the year to determine what cost gain, if any, was 
    created for that year and there would be a reconciliation of any advances.

[21]      
    As explained by the Arbitrator, Hayes primary position before him was that 
    pursuant to s. 11.4(a), costs related to such development should not be expensed 
    until the year in which the harvesting to which they are linked takes place, 
    and thus the costs are analogous to reserves.

[22]      
    Hayes alternative position was that even if the costs for planning, engineering 
    and spur road building are actual audited costs because they must be expensed 
    in the year in which they are incurred, it would make no difference to the 
    cost gain because the costs should be dealt with as a Prescribed Event under 
    s. 10.4 which would increase the baseline costs accordingly and maintain the 
    same cost gain.  In that argument, Hayes relied on Note 2 of Schedule 7 which 
    provides as follows:

Development 
    costs related to development such as planning and engineering (s. 11.4(a)).  
    Significant or material change, on an annual basis will be dealt with as a 
    Prescribed Event.  All development costs incurred in the year will be expensed 
    in the same year as is the current Weyerha[e]user standard accounting practice.  
    For further clarity, this is the same method utilized in the baseline costs 
    calculation.

(i)         
    Inventory or Costs

[23]      
    In rejecting Hayes primary submission that expenditures for planning, engineering 
    and spur road building should be treated as inventory rather than contemporary 
    expenses, the Arbitrator took the view that such an interpretation was incongruent 
    with the parties intention and with commercial efficacy, or good business 
    sense.

[24]      
    The Arbitrator pointed to the baseline costs which he described as serving 
    as the yardstick by which to measure Hayes performance under the TSE and 
    noted that it was by comparing the baseline costs with the costs expended 
    by Hayes going forward that establish the basis of remuneration for Hayes 
    and the cost to WCL.  The Arbitrator regarded it as a central point that 
    when establishing the baseline costs, the parties accepted that the costs 
    of spur roads and planning and engineering were costs which were expensed 
    when they were incurred, as opposed to being dealt with as inventory.  He 
    concluded that it was critical for there to be consistency between the accounting 
    treatment used to create the baseline cost and how Hayes performance going 
    forward is to be measured.  He concluded that there was no evidence of a change 
    in the treatment of development of engineering, planning and road building 
    which would justify a departure from what he described as the baseline principles 
    which included treating those costs as expenses rather than inventory.  The 
    Arbitrator found that the evidence taken as a whole led to the conclusion 
    that the parties intended that such development costs would be expensed rather 
    than treated as inventory.

[25]      
    In coming to his conclusion, the Arbitrator noted that Weyerha[e]user has 
    always expensed spur road and planning and engineering costs in the year they 
    were incurred, and as well that there was evidence before him that it is common, 
    although not universal, within the industry to expense such items in the year 
    they were incurred.  He also noted that the planning and roads which were 
    provided to Hayes at the commencement of the TSE by WCL were valued at zero, 
    having already been expensed, and he noted that there was no provision in 
    the contract upon its termination for WCL to purchase any planning and engineering 
    and spur road inventory from Hayes, which he found further supported the position 
    that those costs were to be expensed, not inventoried.

[26]      
    It was the Arbitrators view that the definition of GAAP included in the TSE, 
    which referenced consistent application compelled him to look at the practice 
    of Weyerha[e]user and a number of other forest companies to establish what 
    that consistent application meant.  It was his view that the preponderance 
    of the evidence established that the application of GAAP favoured expensing 
    such costs in the year they were incurred, rather than treating them as inventory.  
    He concluded that Hayes bore the onus of proof, not only because it was the 
    claimant in the arbitration, but because it was seeking to prove a change 
    from the status quo.  He concluded that there was no evidence that the parties 
    had committed to a changed accounting treatment and that the consistency analysis 
    under GAAP supported Weyerha[e]users position and not that of Hayes.  He 
    found particular support for WCLs position in the fact that Hayes agreed 
    to employ Weyerha[e]users accounting treatment in creating the baseline costs 
    and he concluded that it made no sense that Hayes would have been given the 
    power to build up inventory, lower its costs, and increase the gain unilaterally 
    by banking spur roads and planning and engineering in the manner that it 
    proposes.

[27]      
    The Arbitrator also found that the Purpose and Interpretation section of 
    the TSE supported WCLs position because, he found, it would be artificial 
    to say that Weyerha[e]user obtained cost savings by no longer expensing spur 
    roads and planning and engineering work because it would in fact increase 
    Weyerha[e]users costs, not reduce them which would be contrary to the clear 
    intent and purpose of the contract as set out in s. 1.2.

[28]      
    Regarding the definition of actual audited costs as those incurred directly 
    or properly allocated  calculated on a consistent basis in accordance with 
    GAAP, the Arbitrator found that to mean that spur road building, planning 
    and engineering needed to be consistently treated to establish Hayes actual 
    audited costs.  It was his view that s. 11.4, because it referred to planning, 
    engineering and roadwork that has not been expensed in accordance with GAAP, 
    did not refer to the work at issue because historically, and in the baseline 
    period, such expenditures
were
expensed in accordance with GAAP.  [Emphasis 
    in original.]

[29]      
    Finally, the Arbitrator noted that Schedule 7 to s. 11.4 explicitly stated 
    that all development costs incurred in the year will be expensed in the same 
    year as is the current Weyerha[e]user standard accounting practice ie. he 
    found explicit support for WCLs position in that Explanatory Note.

[30]      
    The Arbitrators determination of the issue is set out in his June 10, 2005, 
    ruling in paras. 8  10 inclusive as follows:

The parties, 
    at the initiative of Hayes, jointly determined the initial Baseline Costs.  
    The Baseline Costs serve as the yardstick by which to measure Hayes performance 
    under the TSE.  They were prepared taking into account Weyerhaeusers costs, 
    partly actual and partly forecast, of logging this area in 2001 and 2002.  
    The Baseline Costs measure Hayes performance by comparing the costs expended 
    by Hayes going forward with the costs expended by Weyerhaeuser in the last 
    two years pre-dating the TSE.  Hayes performance as against the Baseline 
    Costs in turn directly affects the Gain or financial improvements made by 
    Hayes, and the TSE provides mechanisms for sharing the Gain as between Hayes 
    and Weyerhaeuser from year to year.

A central 
    point for purposes of this Award is that both parties, in preparing the Baseline 
    Costs, treated the costs of spur roads and planning and engineering as costs 
    expensed when they were incurred, as opposed to being recorded as inventory.  
    When it is kept in mind that Baseline Costs are intended to serve as the yardstick 
    for measuring Hayes performance throughout the life of the TSE, one sees 
    how important it is that there be consistency between how the Baseline Costs 
    were created and how Hayes performance is measured going forward.  There 
    is no dispute as to the importance of the Baseline Costs and the reason for 
    calculating them.  Nonetheless, Hayes says that the parties somehow agreed 
    that spur roads, planning and engineering would be expensed in calculating 
    the Baseline Costs, but sometimes treated as inventory thereafter.  Such a 
    departure from what I am going to call the Baseline principles might be 
    possible, but there would have to be convincing evidence of such a change 
    if it was intended, and I see no such evidence here.

To the contrary, 
    the evidence taken as a whole leads to the conclusion that the parties intended 
    for 2003 and 2004 that spur roads and planning and engineering would be expensed 
    and not treated as inventory.  (There is no dispute as to the governing legal 
    principles.  The intention of the parties is learned from what they said to 
    one another and did with the others knowledge at the relevant time.)  There 
    is no dispute that Weyerhaeuser has always expensed spur roads and planning 
    and engineering.  There is no dispute that all the data Weyerhaeuser made 
    available to Hayes for creating the Baseline Costs expensed these items.  
    Nor can there be any reasonable dispute that it is common although not universal 
    practice within the industry to expense these items.  I note that when Hayes 
    acquired assets from Weyerhaeuser in preparation for operating under the TSE, 
    spur roads installed and planning and engineering work handed over by Weyerhaeuser 
    were valued at zero.  Hayes in other words paid nothing for this work, when 
    it would and did pay for assets such as logging equipment.  This point determines 
    nothing, but it does serve to corroborate the treatment of this work as a 
    cost.

(ii)        
    Prescribed Event

[31]      
    In regards to Hayes alternative submission, that the expenses should be dealt 
    with as a Prescribed Event and used to adjust the baseline costs upward, thus 
    offsetting the increase in the actual audited costs occasioned by expensing 
    the development costs in the year in which they were incurred, the Arbitrator 
    held that a Prescribed Event, as defined in s. 1.1 of the TSE clearly cannot 
    apply to the spur road and planning and engineering work by Hayes that forms 
    the subject of this dispute.  He reasoned thus at paras. 24 and 25 of his 
    ruling of June 10, 2005:

Finally, 
    I address the submission of Hayes that even if the costs in question are Actual 
    Audited Costs, it makes no difference because the Baseline Costs should be 
    increased correspondingly as a Prescribed Event.  This argument is linked 
    to section 11.4 of the TSE, addressing advances for Development Inventory, 
    and to Schedule 7, Explanatory Note 2.  That Note provides in part that:  
    Significant or material change, on an annual basis will be dealt with as 
    a Prescribed Event.

However, 
    a Prescribed Event is defined in section 1.1 of the TSE such that it clearly 
    cannot apply to the spur road and planning and engineering work by Hayes which 
    forms the subject of this dispute.  Having reference to the definition, such 
    work was not a material event outside the control of Hayes or a material change 
    in the manner of Hayes performing its services.  In any event, the balance 
    of Explanatory Note 2 in Schedule 7, quoted earlier in this Award, at paragraph 
    19, makes very clear the parties intention that all development costs incurred 
    in a year will be expensed in the same year, as was done in creating the Baseline 
    Costs.  [Emphasis in original.]

[14]

The judge discussed applicable legal 
    principles in paras. 57  61. I provide a summary of them:

·

the goal is to discover, objectively, 
    the intention of the parties at the time the contract was made; the language 
    of the agreement is the most significant tool; only where the words, viewed 
    objectively in the context of the surrounding circumstances, bear two or more 
    reasonable meanings will the court consider extraneous evidence:
Gilchrist 
    v. Western Star Trucks Inc.
, 2000 BCCA 70, 73 B.C.L.R. (3d) 102 at 
    paras. 17 - 18;

·

a contract must be viewed as 
    a whole and, where possible, effect must be given to all its terms unless 
    an interpretation giving a reasonable construction cannot be found:
B.G. 
    Checo International Ltd. v. B.C. Hydro and Power Authority
,

[1993] 
    1 S.C.R. 12 at 23-24;

·

the factual matrix, which is 
    the background of relevant facts that clearly must have been known to the 
    parties, can throw light on the parties intentions:
Glaswegian Enterprises 
    Inc. v. B.C. Tel Mobility Cellular Inc.
(1997), 101 B.C.A.C. 62, 49 
    B.C.L.R. (3d) 317 at para. 18;

·

the words of a contract must 
    not be overwhelmed by a contextual analysis; the meaning of the words is the 
    meaning most consistent with commercial reality and the whole of the contract:
Black Swan Gold Mines Ltd. v. Gold Belt Resources Ltd.

(1996), 
    78 B.C.A.C. 193, 25 B.C.L.R. (3d) 285 at para. 19;
Glaswegian
at para. 20.

[15]

He summarized the law in para. 62:

[] 
    in
Group Eight Investments v. Taddei
,

2005 BCCA [489] the court 
    quoted Robin J.A. in
Scanlon v. Castlepoint Development Corp.
(1992), 
    99 D.L.R. 4th 153 (Ont. C.A.) at p. 179 as providing a clear summary of the 
    principles of contract interpretation at play in the commercial context:

The agreement 
    with which we are concerned is a negotiated commercial document which should 
    be construed in accordance with sound commercial principles and good business 
    sense.  To the extent that it is possible to do so, it should be construed 
    as a whole and effect should be given to all of its provisions.  The provisions 
    should be read, not as standing alone, but in light of the agreement as a 
    whole and the other provisions thereof.

[16]

The judge concluded in para. 65 the 
    Arbitrator did fall into error by considering evidence of how [Weyerhaeuser] 
    and other forest industry companies treat planning, engineering and road building 
    costs outside a contract such as the [Agreement].

[17]

He stated in para. 67 the accounting 
    treatment the parties accepted as valid in the baseline period which was used 
    to calculate the baseline cost was relevant and resonates with the definition 
    of factual matrix.  He concluded the fact there was no material change 
    in development costs during the baseline period was factual matrix evidence 
    that would add some understanding of the parties intention in including 
    a term in the [Agreement] apparently to deal with circumstances in which there
is
a material change.  [Emphasis in original.]

[18]

In para. 68 the judge asserted the proper 
    evidence the arbitrator should have considered was the fact the parties used 
    Weyerhaeusers accounting treatment of development costs when there was no 
    material change.  This, he stated, is the factual context in which various 
    provisions of the Agreement should be read.

[19]

The judge dealt with Prescribed Event 
    in paras. 73 - 74:

Furthermore, by introducing the element of a Prescribed Event, Note 2 appears 
    to address significant or material changes in s. 11.4(a) costs on an annual 
    basis in a way that would raise WCLs costs while not reducing Hayes gain 
    share.  In my view, if the words in Note 2 significant or material change 
    on an annual basis
will be dealt with as
a Prescribed Event are read 
    in light of their natural and ordinary meaning, it would result in such costs 
    being deemed a Prescribed Event.  I come to this conclusion because in 
    my view it would make no sense to read the words will be dealt with as, 
    as engaging the definition of Prescribed Event in s. 1.1(oo) as to do so would 
    render the words of Explanatory Note 2 superfluous.  In my view, the 
    only meaning attributable to those words is the definition advanced by the 
    plaintiff, that is, handled as or administered as.  Clearly, if an 
    event falls within the definition of a Prescribed Event, there is no need 
    to provide that it will be dealt with as such, as that would follow by the 
    operation of s. 10.4(b) of the TSE.

Thus, if Explanatory Note 2 is given effect to, it would lead to an apparent 
    conflict in the terms of the TSE.  The conflict would arise between those 
    terms providing for an integrated inventory system under which adjustment 
    payments are made according to whether inventory goes up or down, and Note 
    2, which takes 11.4(a) development costs resulting from a material change 
    in volume of timber accessible and ready for logging that has not been expensed 
    in accordance with GAAP out of the inventory advance scheme.  Further, 
    if given effect to, Note 2 would deem significant or material change to such 
    costs to be a Prescribed Event necessitating an adjustment to the baseline 
    costs.  If that were to happen, WCLs costs would increase without a 
    corresponding reduction in Hayes gain share.

[Emphasis in original.]

[20]

It was the judges view that Explanatory 
    Note 2 in Schedule 7 appears to contemplate an accounting treatment in conflict 
    with the inventory system established for infrastructure and Capital Roads 
    (at paras. 70 - 72).  He concluded in para. 77 Explanatory Note 2 cannot 
    be found to have any effect and in para. 78 construing the contract this 
    way recognizes what is evident from the factual matrix:  in the baseline period 
    there were no s. 11.4(a) costs incurred from a material change in volume of 
    timber accessible and ready for logging that had not been expensed in accordance 
    with GAAP.  He found that his approach provided symmetry [] between Hayes 
    costs and the cost gain [] (at para. 79).

[21]

In para. 81, the judge stated it was 
    not inconsistent with good business sense for Weyerhaeuser to carry the burden 
    of development costs until timber was harvested and held in para. 83 that 
    the arbitrator had erred in concluding on a true construction of s. 11.4(a) 
    Hayes must expense development costs which result from a material change 
    in volume of timber accessible and ready for logging in the year in which 
    they are incurred.

[22]

Although it is not apparent on its face, 
    the third question on which leave was granted concerned an alleged settlement 
    of issues related to 2003.  The arbitrator held at para. 23 of his award agreement 
    was reached with respect to planning for 2003 in the total and final amount 
    of $350,000.  He was asked to state what amendments were required to the 
    Special Purposes Report for 2003 as a result of his award.  He stated in para. 
    6 of his Ruling on Motions Brought After the Award:

My finding in the Award that there was a final settlement 
    regarding planning costs for 2003 was intended to resolve this issue, and 
    I do not accede to Hayes argument that the 2003
Report
should be amended 
    as Hayes proposes.

[23]

Mr. Justice Cullen looked at the evidence 
    of the parties concerning per cubic metre costs figures and observed at para. 
    93 it would not make good business sense for Hayes to settle on the basis 
    determined by the Arbitrator.  He then stated the Arbitrators conclusion 
    on this point amounts to an error of law and cannot be sustained.

[24]

The judge expressed the results of the 
    appeal in para. 95 as follows:

In 
    the result, therefore, I make the following orders:

1.         
    A declaration that on a true construction of s. 11.4(a) of the Timber Supply 
    Execution Agreement between Hayes Forest Services Limited and Weyerhaeuser 
    Company Limited dated January 2, 2003, Hayes is not required to expense all 
    planning, engineering, road building (other than capital roads) and other 
    forest development costs, which result from a material change in volume of 
    timber accessible and ready for logging in the year in which they are incurred;

2.         
    A declaration that in determining that the 2003 settlement entitled Hayes 
    to the payment of the actual audited costs of $73.49 per cubic metre rather 
    than $75.02 per cubic metre, the Arbitrator acted on a view of the facts which 
    could not reasonably be entertained;

3.         
    An order setting aside the award and the further award;

4.         
    An order remitting the matter to the Arbitrator.

Positions of the parties

[25]

Weyerhaeuser contends that the judge 
    erred by reweighing the evidence and by making a finding of fact not made 
    by the arbitrator and not available on the evidence.  It asserts the judge 
    should have given meaning to all terms of the Agreement and erred by concluding 
    that Note 2 in Schedule 7 has no effect.  Weyerhaeuser states the judge misinterpreted 
    the Agreement by failing to conclude that Hayes was obliged to expense development 
    costs fully in the year in which they are incurred and in holding Note 2 in 
    Schedule 7 required a deemed Prescribed Event regardless of whether it was 
    under the control of Hayes.  Finally, in Weyerhaeusers view the judge erred 
    by quashing the 2003 settlement when the only issue before the Court was 
    whether the Actual Audited Costs for 2003 to be used for the purposes of that 
    settlement were $75.02/m3 rather than $73.49/m3.

[26]

Hayes states the issues on appeal are 
    whether the judge erred holding the arbitrator was wrong in law construing 
    the provisions of the Agreement dealing with the accounting treatment of development 
    inventory and whether the judge erred quashing the arbitrators determination 
    there was an agreement finding 2003 Actual Audited Costs at $73.49/m3.

Discussion

Framework of analysis

[27]

Some arbitration legislation limits 
    court intervention to assisting the arbitral process and to recognizing and 
    enforcing awards.  An example is the
International Commercial Arbitration 
    Act
, R.S.B.C. 1996, c. 233.  It applies only to international arbitrations.  
    The
Commercial Arbitration Act
applies to all other commercial 
    arbitrations in the Province.  The two acts were passed at essentially the 
    same time, the spring of 1986.

[28]

Parties to domestic disputes, which 
    generally apply the law of British Columbia, may seek the assistance of the 
    court to ensure their disputes are determined on correct legal principles.  
    That is the role served by the ability to appeal a domestic arbitration award.  
    International disputes often apply a substantive law different from that of 
    the forum.  In addition, international parties often are reluctant to submit 
    to the jurisdiction of a foreign court merely because the place of arbitration 
    is there.  Non-court supervision is seen as a positive feature of arbitration 
    legislation applicable to international disputes.

[29]

The limited right of appeal in the
Commercial 
    Arbitration Act
flowed out of recommendations in the 1982
Report 
    on Arbitration
of the Law Reform Commission of British Columbia that 
    led to the adoption of the
Act
in 1986.  The appeal right arose 
    out of the need to eliminate the case-stated procedure, which allowed the 
    arbitrator to consult the court on a question of law while retaining jurisdiction 
    and out of a concern with the courts jurisdiction to correct errors of law 
    on the face of the record.

[30]

Although the Commission made no clear 
    distinction between domestic and international arbitration, it did recognize 
    that English legislation gave some consideration to the difference.

[31]

The Commission noted that the case-stated 
    procedure was much criticized as increasing the cost and inefficiency of arbitration 
    and had this to say at 72:

Although arbitrations are intended to provide a less 
    expensive and less cumbersome method of resolving disputes than litigation 
    in the courts, the setting aside of an award can sometimes make arbitration 
    a more costly and a less satisfactory procedure than litigation.  It can also 
    make a mockery of the two principal objectives of arbitration, namely early 
    finality and a determination outside the courts.

[32]

The Commission observed that the review 
    process in which a court may set aside an award for an error of law on the 
    face of the award has been criticized for over a century (at 73) and stated 
    at 74:

The criticism of the judicial supervision and review 
    of arbitration awards seems to divide into three main areas.

1.         
    Judicial supervision and review may rob the arbitration process of its early 
    finalty.

2.         
    As a matter of principle, parties who have constituted their own tribunal 
    should be bound by its decision, for better or worse.

3.         
    The availability of judicial review is fortuitous in the sense that it depends 
    not on the nature or extent of the alleged injustice but on the technical 
    questions of what constitutes the face of the award, and whether the arbitrator 
    has chosen to set out his reasons therein.

The first two criticisms are essentially policy issues 
    that can only be answered in terms of competing policy considerations.  While 
    we do not question the validity of these criticisms, we believe that some 
    form of judicial supervision over arbitration awards is salutary.  Justice, 
    in our view, should not be subordinated to considerations of speed and convenience.  
    Simply because parties have chosen one forum in preference to another for 
    the resolution of a dispute between them should not carry with it the implication 
    that the parties have waived their rights to have that dispute resolved in 
    accordance with the law and widely accepted legal norms of conduct.

[33]

The Commission noted England abolished 
    both procedures in 1979 and replaced them with a limited right of appeal.  
    At p. 76 the Commission recommended adopting a limited right of appeal.  The 
    Legislature accepted this recommendation, but opted to establish a different 
    regime for international commercial arbitration and provided no right of appeal 
    in the
International Commercial Arbitration Act
.

[34]

It is important to recognize and respect 
    the boundaries of the limited right of appeal that is enshrined in the
Commercial 
    Arbitration Act
.

[35]

Under the pre-1986 law, the courts 
    ability to intervene to correct an error of law on the face of the record 
    was limited to questions of law that were not the specific question put to 
    the arbitral tribunal. That is not the case under the current
Act
(
Sandbar Construction Ltd. v. Pacific Parkland Properties Inc.
(1994), 
    40 B.C.A.C. 194, 87 B.C.L.R. (2d) 145 (C.A.) at 153).

[36]

This seemingly broader scope of review 
    must be undertaken bearing in mind the Legislatures intention to limit court 
    intervention, as reflected in a 1992 amendment to the
Act
:  [i]n 
    matters governed by this Act [] a court must not intervene except as provided 
    for in this Act and recognizing the policy of the 1986 legislation  to facilitate 
    the effective arbitration of commercial disputes  as was stated when the 
    bill first was introduced in the Legislature.  In
B.C.I.T. (Student 
    Association v. B.C.I.T.
, 2000 BCCA 496, 80 B.C.L.R. (3d) 266, this 
    Court moved to avoid limiting the discretion of judges considering leave applications 
    and broadened the threshold inquiry into the merits.  In words prophetic of 
    this appeal, the Court commented in para. 14 on the legislative intention:

It is well accepted that one objective of the new
Act
was to foster arbitration as an alternative dispute mechanism by, amongst 
    other measures, discouraging appeals of arbitration awards to courts.  There 
    has been a sense that under the old
Act
, arbitration was infrequently 
    utilized because it was seen as merely adding one more layer of litigation 
    to the court process of trial and appeal. [....]

[37]

With this background in mind, it is 
    essential to ensure that leave is granted only on questions of law and that 
    those questions are defined clearly.

The questions

[38]

Questions one and two seek a true construction 
    of s. 11.4(a) and are grounded on a comment of Southin J.A. in para. 42 in
British Columbia v. Surrey School District No. 36 (Surrey)
, 
    2005 BCCA 106, 252 D.L.R. (4th) 430:  [a] question of construction of a written 
    instrument is, of course, a question of law.  The case concerned the granting 
    of leave to appeal an arbitration award.  Madam Justice Southin was writing 
    in dissent, although the majority proceeded on the basis that the questions 
    before the chambers judge were questions of law (at para. 7).  Madam Justice 
    Southin referred to no authority when making her observation.  It likely was 
    unnecessary in the context of the case before her.

[39]

Support for the comment of Southin J.A. 
    can be found in
Domtar Inc. v. Belkin Inc.
(1989), 62 D.L.R. 
    (4th) 530, 39 B.C.L.R. (2d) 257 (C.A.) [cited to B.C.L.R.], wherein Lambert 
    J.A. had this to say at 261- 262:

The questions 
    in this case do not look like questions of law.  They are questions about 
    what the parties agreed upon.  The decision about what the parties agreed 
    upon involves the construction of what the written agreement said.  Is that 
    a question of law?  In
Pioneer Shipping Ltd. v. BTP Tioxide Ltd.
;
The 
    Nema,
[1982] A.C. 724, [1981] 3 W.L.R. 292, [1981] 2 All E.R. 1030, Lord 
    Diplock, for the House of Lords, said this, at p.1035:

The answer 
    must depend on the true construction of the agreement between the parties; 
    and in English jurisprudence, as a legacy of the system of trial by juries 
    who might not all be literate, the construction of a written agreement, even 
    between private parties, became classified as a question of law.  ... A lawyer 
    nurtured in a jurisdiction that did not owe its origin to the common law of 
    England would not regard it as a question of law at all.  ... Nevertheless, 
    despite the disappearance of juries, literate or illiterate, in civil cases 
    in England, it is far too late to change the technical classification of the 
    ascertainment of the meaning of a written contract between private parties 
    as being a question of law for the purposes of judicial review of awards 
    of arbitrators or decisions of administrative tribunals from which an appeal 
    to a court of justice is restricted by statute to an appeal on a question 
    of law.

In
Kelantan Govt. v. Duff Dev. Co.,
[1923] AC. 395 (H.L.), Viscount Cave, 
    in a much quoted passage at p. 409, said this:  no doubt a question of construction 
    is (generally speaking) a question of law.  The passage containing that statement 
    has been quoted with approval by the Supreme Court of Canada in
Bell Can. 
    v. O.P.E.I.U., Loc. 131,
[1974] 1 S.C.R. 335, 37 D.L.R. (3d) 561; and 
    in
Volvo Can. Ltd. v. U.A.W., Loc. 720,
[1980] 1 S.C.R. 178 [additional 
    citations omitted].

I 
    propose, therefore, to regard the two remaining questions in this case, which 
    are both questions about alleged errors in construction of the agreement between 
    the parties, as being questions of law.

[40]

Other relevant authority includes
Petty 
    v. Telus Corp.
, 2002 BCCA 135, 164 B.C.A.C. 152 and
MacDougall 
    v. MacDougall
(2005), 262 D.L.R. (4th) 120, 205 O.A.C. 216 (C.A.).

[41]

In
Petty
, this Court dealt 
    with the issue stating at para. 14:

The construction of a contract is a question of mixed 
    fact and law.  The question is what the parties intended by the language of 
    the agreement, viewed objectively, in the circumstances in which the agreement 
    was made.  A.G. Guest (ed.)
Chitty on Contracts
(28th ed.), Vol. I 
    (London:  Sweet & Maxwell 1999) summarizes the proper approach for the 
    court this way:

12-043     
    Intention of the parties.  The task of ascertaining the intention of the parties 
    must be approached objectively:  the question is not what one or other of 
    the parties meant or understood by the words used, but "the meaning which 
    the document would convey to a reasonable person having all the background 
    knowledge which would reasonably have been available to the parties in the 
    situation in which they were at the time of the contract."  The cardinal 
    presumption is that the parties have intended what they have in fact said, 
    so that their words must be construed as they stand.  That is to say the meaning 
    of the document or of a particular part of it is to be sought in the document 
    itself.  "One must consider the meaning of the words used, not what one 
    may guess to be the intention of the parties".  However, this is not 
    to say that the meaning of the words in a written document must be ascertained 
    by reference to the words of the document alone.  In the modern law, the courts 
    will, in principle, look at all the circumstances surrounding the making of 
    the contract which would assist in determining how the language of the document 
    would have been understood by a reasonable man.

. . .

12-046 
    Law and fact. The construction of written instruments is a question of mixed 
    law and fact. The expression "construction" as applied to a document 
    includes two things: first, the meaning of the words; and, secondly, their 
    legal effect, or the effect which is to be given to them. Construction becomes 
    a question of law as soon as the true meaning of the words in which an instrument 
    has been expressed and the surrounding circumstances, if any, have been ascertained 
    as facts. However, the meaning of an ordinary English word, of technical or 
    commercial terms and of latent ambiguities, and the discovery of the surrounding 
    circumstances (when they are relevant) are questions of fact.

[42]

The Ontario Court of Appeal in
MacDougall
referred to
Petty
in para. 28 and stated:

In
Casurina
, Feldman J.A. upheld the interpretation 
    of a contract, finding that the trial judge had applied the proper principles 
    of interpretation, including consideration of the whole of the contract and 
    the purpose of the trust at issue.  Relying on
Petty v. Telus Corp.
(2002), 164 B.C.A.C. 152, at para. 14, referring to
Chitty on Contracts
, 
    28th ed. (London:  Sweet & Maxwell, 1999) at para. 12-046, she found "the 
    construction of a written instrument is a question of mixed fact and law." 
    (para. 34)

The 
    Court
continued in paras. 
    30 - 33:

To begin with, the trial judge must apply the proper principles 
    of contract interpretation, including consideration of the clause in the context 
    of the entirety of the contract.  A failure to follow the proper principles, 
    including a failure to apply a fundamental principle of interpretation, would 
    be an error of law attracting review on the standard of correctness.

To the extent that this task of interpretation includes consideration 
    of extrinsic evidence, or a determination of the factual matrix, the trial 
    judge is involved in making a finding of fact, or drawing inferences from 
    a finding of fact.  Further, the trial judge's "interpretation of the 
    evidence as a whole" is one involving factual or inferential determinations. 
     See
Amertek Inc. v. Canadian

Commercial Corp.
(2005), 200 O.A.C. 
    38, 256 D.L.R. (4th) 287, at para. 68.  Such questions of fact are entitled 
    to deference and are not to be overturned except in the case of palpable or 
    overriding error, or its "functional equivalents":  "clearly 
    wrong", "unreasonable", and "not reasonably supported 
    by the evidence".  See
H.L. v. Canada
, [2005] 1 S.C.R. 401, 251 
    D.L.R. (4th) 604, at para. 110.

In interpreting the contract, the trial judge also applies 
    the legal principles to the language of the contract in the context of the 
    relevant facts and inferences.  This requires the application of law to fact. 
     This has been said to be a question of mixed fact and law.  See
Algoma 
    Steel Inc. v. Union Gas Ltd.
(2003), 63 O.R. (3d) 78 (C.A.), at paras. 
    19, 21;
Amertek
, supra, at para. 68.

Accordingly, in reviewing the trial judge's interpretation of a contract, 
    the appellate court must first classify the question as one of fact, law, 
    or mixed fact and law.  If the question is an inextricable intertwining of 
    both fact and law, the question can be said to be one of mixed fact and law. 
    [.]

[43]

Although
Pioneer, Domtar
and
Surrey School District
were cases involving arbitrations 
    and
Petty
was not, I see no basis in principle or policy for 
    characterizing the inquiry differently in that context.  To repeat: 
Construction becomes a question of law as soon as the 
    true meaning of the words in which an instrument has been expressed and the 
    surrounding circumstances, if any, have been ascertained as facts. [] the 
    meaning of an ordinary English word, of technical or commercial terms and 
    of latent ambiguities, and the discovery of the surrounding circumstances 
    (when they are relevant) are questions of fact.

[44]

In my view, taken broadly, the construction 
    of a contract often is a question of mixed fact and law.  Insofar as the task 
    narrowly is to determine the meaning of the words in the contract the matter 
    may be a question of law as was stated in
Domtar
, but where 
    the factual matrix of the contract is questioned, determining that matrix 
    and its significance is a question of fact.  Interpreting the language of 
    the contract in the context of the factual matrix is a question of mixed fact 
    and law.

[45]

The problem in this case begins with 
    questions one and two for which leave was granted.  They pose a broad inquiry 
    and do not identify the question of law concerning which the arbitrator is 
    alleged to have erred.  The appeal judge also did not separate the question 
    or questions of law that properly may have been before him from a consideration 
    of the factual determinations of the arbitrator which were not properly before 
    him.

[46]

The task of the arbitrator was to provide 
    a true construction of s. 11.4(a) of the Agreement and Note 2 in Schedule 
    7 in order to determine whether Hayes was obliged to expense all planning, 
    engineering, road building (other than Capital Roads) and other forest development 
    costs in the year they were incurred.  The mandate of the court was to ascertain 
    whether the arbitrator made an error of law in making that determination not 
    itself to make the determination.  In my view, the questions inevitably drove 
    the judge to do so.

Did the arbitrator err in law concluding Hayes must expense costs annually?

[47]

I do not agree that the arbitrator erred 
    by considering evidence of how Weyerhaeuser and other forest companies treated 
    development costs.  In its submission before the arbitrator, Hayes alleged 
    Weyerhaeuser failed properly to follow GAAP.  The treatment of development 
    costs by other companies in the forest industry was relevant to a consideration 
    of GAAP.  In addition, the arbitrator was entitled to take into account Weyerhaeusers 
    practice in considering the factual matrix in relation to Note 2 and the calculation 
    of gain as related to Baseline Costs.

[48]

Mr. Justice Cullens summary of Hayes 
    submissions, as stated in paras. 63 - 64 of his reasons, illustrate the judges 
    incursion into the factual domain of the arbitrator.  In para. 63, the judge 
    noted Hayes asserted the arbitrator erred by considering extrinsic evidence 
    not relevant to a determination of the intentions of the parties and by failing 
    to distinguish between the nature of costs incurred in the baseline period 
    and those incurred during the period in dispute.   The extrinsic evidence 
    is particularized in para. 64 as Weyerhaeuser and others treatment of development 
    costs.

[49]

The judge asserted in para. 66 Weyerhaeuser 
    and other forest companies presumably use an accounting treatment that serves 
    their economic interests and suggested that considering their practices in 
    the context of construing the contract is analogous to eating an apple in 
    order to infer the taste of an orange.  He continued in paras. 67 - 68:

On the other hand, clearly what accounting treatment the parties accepted 
    as valid in the baseline period which was used to calculate the baseline cost 
    has relevance and resonates with the definition of factual matrix established 
    in
Glaswegian
(para. 18):

the background 
    of relevant facts that the parties must clearly have been taken to have known 
    and to have had in mind when they composed the written text of their agreement.

It 
    follows, as the petitioner contends, that evidence that during the baseline 
    period there was
no
material change in engineering, planning and spur 
    road building would be factual matrix evidence conducive to deepening an understanding 
    of the parties intention in composing the contract.  In my view, that factual 
    matrix evidence would add some understanding of the parties intention in 
    including a term in the TSE apparently to deal with circumstances in which 
    there
is
a material change.

Thus, in my view, the proper evidence for the Arbitrator to have in mind in 
    interpreting the terms of issue in this contract was the fact that the parties 
    used WCLs accounting treatment of planning, engineering and spur road building 
    in the baseline period when there was no material change in volume or costs.

[Emphasis in original.]

[50]

It is important to put the arbitrators 
    consideration of forest industry practice into context.  Referring to the 
    arbitrator the judge stated in paras. 26 and 28:

It was the Arbitrators view that the definition of GAAP included in the TSE, 
    which referenced consistent application compelled him to look at the practice 
    of Weyerha[e]user and a number of other forest companies to establish what 
    that consistent application meant. [.]

[.]

[.] It was his view that s. 11.4, because it referred 
    to planning, engineering and roadwork that has not been expensed in accordance 
    with GAAP, did not refer to the work at issue because historically, and in 
    the baseline period, such expenditures
were
expensed in accordance 
    with GAAP.

[Emphasis 
    in original.]

[51]

In my view, the arbitrator was entitled 
    to take into account evidence of the accounting treatment of development costs 
    in the forest industry and, considering the nature of costs clearly was a 
    matter for the arbitrator.  Whether he was right or wrong in that consideration 
    is not a matter for review under the
Act
.  In this case, it 
    does not engage a question of law.

[52]

After stating the proper evidence for 
    the Arbitrator to have in mind was the absence of a material change in costs 
    in the baseline period, the judge asserted in para. 69:  [i]t is in that 
    factual context, that the provisions of s. 1.1(oo), s. 10.4(b), s. 11.4, 11.5 
    and Schedule 7 must be read [...].

[53]

Determining the proper evidence to have 
    in mind is a factual inquiry.  Unless an arbitrator makes an error in principle 
    in such a determination, his conclusions are not appealable under the
Act
.  
    In my view, the judge determined what evidence he thought should be taken 
    into account in developing the factual matrix for the interpretation of the 
    Agreement.  That was a task of the arbitrator.  Weighing the evidence and 
    reaching factual conclusions based on it was within the arbitrators mandate 
    and his conclusions were not reviewable under s. 31 of the
Act
.

[54]

The judge interpreted the first sentence 
    of Note 2 as requiring the costs in issue to be treated as a Prescribed Event. 
     He said in para. 73:  [] if the words in Note 2 significant or material 
    change on an annual basis
will be dealt with as
a Prescribed Event 
    are read in light of their natural and ordinary meaning, it would result in 
    such costs being deemed a Prescribed Event. [Emphasis in original.] 
     He continued in my view it would make no sense to read the words will be 
    dealt with as, as engaging the definition of Prescribed Event in s. 1.1(oo) 
    as to do so would render the words of Explanatory Note 2 superfluous.  The 
    judge also considered that Note 2 was not consistent with the sample calculations 
    in Schedule 7 (at para. 72).

[55]

In the result, the judge decided that 
    effect should not be given to Note 2 (at para. 77).

[56]

The arbitrator considered s. 11.4(a) 
    and Note 2 in Schedule 7 as discrete and compatible.

[57]

Section 11.4 deals with cash flow.  
    Where in a month there is a material change in the volume of timber accessible 
    and ready for logging, Hayes prepares a statement of the development inventory 
    at hand that summarizes categories of costs, including planning, engineering, 
    road building and other forest development costs.  Hayes is reimbursed if 
    the value exceeds the previous month and will pay Weyerhaeuser if the value 
    has decreased.

[58]

The arbitrator concluded that the words 
    will be dealt with as embraced the contractual definition of Prescribed 
    Event, which excludes matters in the control of Hayes.  It appears to be 
    common ground the development costs in issue were within the control of Hayes.

[59]

The difference between the judge and 
    the arbitrator is a consideration of the word as:  the judge equated as 
    with like; the arbitrator considered as to be the same.  Neither interpretation 
    is unreasonable.  In my view, the judge preferred his reasonable interpretation 
    over that of the arbitrator.  He was not entitled to do so.  In addition, 
    as a matter of basic principle, an interpretation that gives life to all provisions 
    of a contract must preferred over one that does not.

[60]

By choosing his view of the first sentence 
    in Note 2, the judge was driven to exclude the Note as inconsistent with s. 
    11.4.  The arbitrators interpretation avoids that result and is consonant 
    with the scheme of the Agreement.

[61]

Pursuant to s. 10.4(b), the Baseline 
    Costs are adjusted on an annual basis to account for Prescribed Events.  Schedule 
    6 of the Agreement contains examples of Prescribed Events.  Most, if not all, 
    are matters outside the control of Hayes.   Section 11.4(a) deals with monthly 
    cash-flow arising out of development costs that result from a material change 
    in the volume of timber accessible and ready for logging.  Note 2 deals with 
    matters on a yearly basis.  The effect of the first sentence of Note 2 is 
    that, annually, insofar as such costs are not under the control of Hayes, 
    they will be used to adjust the Baseline Costs.  The second sentence is very 
    clear; it requires all development costs to be expensed in the year in which 
    they are incurred.

[62]

In my view, the language of the second 
    sentence of Note 2 is unambiguous.  It states the accounting treatment of 
    development costs.  It has nothing to do with cash flow.  It also states this 
    is the same method utilized in Baseline Cost calculation.

[63]

The arbitrator concluded on the evidence 
    and a consideration of the contract as a whole that consistency, GAAP and 
    the plain language of the Agreement required Hayes to expense planning, engineering, 
    road building (other than Capital Roads) and other forest development costs 
    in the year in which they were incurred.  In my view, he made no error of 
    law reaching this conclusion.

[64]

The second question is subsumed in the 
    first.  I would allow the appeal as it concerns both questions and dismiss 
    Hayes appeal from the arbitral award based on them.

The settlement agreement

[65]

The third question ostensibly deals 
    with the settlement of issues concerning 2003.  To place into context the 
    judges conclusion, I set out paras. 32  34 of his reasons in which he addresses 
    the arbitrators consideration of the issue:

(iii)       
    The 2003 Settlement Agreement

The contention between the parties regarding the 2003 settlement arose from 
    an agreement signed by the parties on October 19, 2004, which showed an agreement 
    to adjust the baseline cost figure for 2003 from $76.75 to $81.18.  The increase 
    in the baseline costs included amounts for inflation adjustment, helicopter 
    adjustment, performance advisor, an amount for a shut down ($1,250,000) and 
    $350,000 for planning.  The parties positions in relation to the 2003 settlement 
    were summarized by the petitioner in its memorandum of argument thus:

There was 
    a dispute between Hayes and WCL as to what else was settled on October 19, 
    2004.  Hayes position was that the parties agreed that Hayes would record 
    all planning, Engineering, road building (other than Capital Roads) and other 
    forest development costs which result from a material change in volume of 
    timber accessible and ready for logging which was not expensed in 2003 as 
    Development Inventory on the Special Purposes Report, with the parties reserving 
    their rights to resolve whether this was correct for the future.  Hayes prepared 
    its Special Purposes Report based on its understanding of the Settlement Agreement 
    and showed Actual Audited Costs at $73.49 per metre.

WCLs position 
    was that the parties agreed that Hayes would include all planning, Engineering, 
    road building (other than Capital Roads) and other forest development costs 
    incurred in 2003 as Actual Audited Costs in 2003 and did not agree that Hayes 
    would record all planning, Engineering, road building (other than Capital 
    Roads) and other forest development costs which result from a material change 
    in volume of timber accessible and ready for logging which was not expensed 
    in 2003 as Development Inventory on the Special Purposes Report.  WCLs evidence 
    was that the Actual Audited Costs should have been $75.02 per metre.

In his June 
    10, 2005, ruling, the Arbitrator concluded as follows with respect to the 
    issue of the settlement of 2003 planning costs:

The parties 
    reached a settlement late in 2004 with respect to events in 2003.  The parties 
    differ on whether the settlement included resolution of the total amount for 
    planning costs in 2003.

Note 4 to 
    Hayes Special Purposes Report, for the year ended December 31, 2003, recognizes 
    that on October 19, 2004, the parties reached a final agreement on adjustments 
    to the original baseline totalling $4.43 per cubic meter.  The cost of planning 
    was one of the issues being discussed and as part of the settlement, $350,000 
    was attributed to planning.  That is the agreement recorded in a one-page 
    document in exhibit 2 at tab 26.  Tab 25 of the same exhibit references other 
    elements of the settlement for 2003, which serve to place the settlement evidenced 
    at tab 26 in a larger context.  The second document at tab 25 contains a reference 
    to the 2003 Baseline Saw Off which, according to that document, will result 
    in a net amount of expense to Weyerhaeuser including $350,000 for planning.

Notwithstanding 
    this evidence, Hayes asserts that there was express agreement with Weyerhaeuser 
    that it could carry forward $1.3 million of planning costs, and that the reference 
    in the documents to planning valued at $350,000 for 2003 was not intended 
    to reflect settlement at that amount.

The testimony 
    of the Weyerhaeuser witnesses is entirely consistent with the ordinary reading 
    of these documents referenced above, which speak of the settlement for 2003 
    in unqualified terms.  The Hayes position is contrary to what is recorded 
    in the documents.  When contemporary documents accord with the testimony of 
    one side, it is difficult to accept the contrary position when, as here, there 
    is no suggestion whatever of bad faith concerning what was recorded in the 
    documents.  My conclusion is that agreement was reached with respect to planning 
    for 2003 in the total and final amount of $350,000.  It is no answer for Hayes 
    that the Special Purposes Report for the year ended December 31, 2003 treats 
    planning (development inventory) as inventory totalling $1,365,533 because 
    that was not sent to Weyerhaeuser until after the settlement agreement was 
    reached.

In his July 
    14, 2005, ruling in response to Hayes motion for clarification, the Arbitrator 
    said the following at para. 6:

Turning 
    to the requests of Hayes, I am first asked to advise what amendments to the
Special Purposes Report
for 2003 are necessary to reflect the Award.  
    This issue was addressed in paragraph 13 of Weyerhaeusers Statement of Defence 
    and paragraph 6 of Hayes Reply.  My finding in the Award that there was a 
    final settlement regarding planning costs for 2003 was intended to resolve 
    this issue, and I do not accede to Hayes argument that the 2003
Report
should be amended as Hayes proposes.

[66]

The judge addressed the issue as follows 
    in paras. 84  93:

There is no dispute between the parties that the October 19, 2004, settlement 
    agreement established an adjusted baseline cost of $81.18 in part by identifying 
    s. 11.4(a) development costs amounting to $350,000 as a Prescribed Event.  
    On the issue between the parties whether the sum of $1,365,533 attributed 
    to planning costs for 2003 could be carried forward (Hayes position) or not 
    (WCLs position), the Arbitrator found it could not.  His conclusion 
    was that:

Agreement 
    was reached with respect to planning for 2003 in the total and final amount 
    of $350,000.  It is no answer for Hayes that the Special Purposes Report 
    for the year ended December 31, 2003 treats planning (development inventory) 
    as inventory totalling $1,365,533 because that was not sent to (WCL) until 
    after the settlement was reached.


There 
    was evidence that WCL had copies of Hayes draft financial statements which 
    showed the costs as fully expensed totalling $1,365,533.  There was also 
    evidence that after the agreement was signed, WCL anticipated that it would 
    pay $75.02 per cubic metre for actual audited costs based in part on Hayes 
    expenditure of the $1,365,533 for development costs.

Following the Arbitrators June 10, 2005, award, he was asked by Hayes to 
    advise what amendments to the Special Purposes Report for 2003 are necessary 
    to reflect the award.


The 
    Arbitrator ruled as follows in his July 14, 2004 award:

My finding 
    in the Award that there was a final settlement regarding planning costs for 
    2003 was intended to resolve this issue, and I do not accede to Hayes argument 
    that the 2003 Report should be amended as Hayes proposes.


In 
    the result, therefore, Hayes was not entitled to remuneration of the $1,365,533 
    as actual audited costs, but received the benefit of the $350,000 adjustment 
    to the baseline costs negotiated in the October 19, 2004, agreement and received 
    one-half the cost gain corresponding to the exclusion of $1,365,533 from the 
    actual audited costs.


The 
    respondent argued that the Arbitrators ruling did not amount to a determination 
    as to the quantum of Hayes entitlement to actual audited costs for 2003.  
    Instead, the respondent argued, the Arbitrator ruled that Hayes planning 
    costs could not be carried forward as part of the October 2004 settlement.  
    The respondent further argued that the Arbitrator was not asked by Hayes in 
    the arbitration to make a determination of Hayes entitlement to actual audited 
    costs for 2003, or that the 2003 Special Purposes Report should be reissued.


The 
    respondent contended that the argument on leave does not relate to a question 
    of law arising out of the award and therefore cannot be considered by this 
    court under s. 31(1) of the
CAA
citing McEwan and Herbst,
Commercial 
    Arbitration in Canada
, looseleaf (Aurora, Ontario:
Canada Law Book
, 
    2006) p. 10-76:

An issue 
    which arises after the arbitration and was not before the arbitrators cannot 
    form the basis for any question of law arising from the award; it cannot be 
    said they committed an error in law in failing to consider it.  If the 
    alleged point of law is not dealt with in the award, it cannot be said that 
    the question of law arises out of the award.


The 
    petitioner on the other hand contended that the issue which the Arbitrator 
    decided in relation to the 2003 actual audited costs was before him in the 
    motion for clarification resulting in the award of July 14, 2006, in which 
    the petitioner sought clarification as to what amendments to the Special 
    Purposes Report for 2003 are necessary to reflect the award.


In 
    my view, the effect of the Arbitrators ruling on the petitioners motion 
    for clarification reflects an acceptance that it was an issue before him for 
    disposition.  He treated his determination of the issue of the 2003 agreement 
    as finally dispositive of the issue of the question of Hayes entitlement 
    to actual audited costs for 2003.  In my view, therefore, as determined 
    by Brown J., in granting leave, the argument relates to a question of law 
    arising out of the award.


It 
    appears that the Arbitrator had evidence before him that WCL regarded the 
    appropriate actual audited costs figure to be $75.02 per cubic metre on the 
    footing that the development costs at issue could not be treated as inventory.  
    There was also evidence that, at the time of the settlement, WCL had Hayes 
    unaudited financial statements showing the figure at issue as a cost rather 
    than inventory.  No where was there evidence at the time of the agreement 
    that the parties contemplated actual audited costs of less than $75.02 per 
    cubic metre if Hayes did not carry forward its development costs.  Indeed, 
    it would not make good business sense for Hayes to settle on the basis determined 
    by the Arbitrator.  Rather, Hayes would be further ahead simply by treating 
    the $1,365,533 as actual audited costs for remuneration instead of receiving 
    one-half that amount as its cost gain share and $350,000 through an adjustment 
    to the baseline costs.  That settlement would disadvantage Hayes from 
    what it would receive on WCLs position by an amount in excess of $300,000.  
    I conclude, therefore, that the Arbitrators conclusion on this point amounts 
    to an error of law and cannot be sustained.

[67]

I state again the question on which 
    leave to appeal was granted by Madam Justice Brown:

In 
    determining that the 2003 settlement entitled Hayes to payment of actual audited 
    costs of $73.49 per cubic metre rather than $75.02 per cubic metre, did the 
    arbitrator act on a view of the facts which could not be reasonably entertained?

[68]

This question addresses one result of 
    the arbitrators award  the effective per cubic metre costs.  His award does 
    not deal with that result as such.  He concluded that the parties reached 
    an agreement with respect to planning for 2003 in the total and final amount 
    of $350,000 paid to Hayes.  The judge concluded that such a settlement would 
    not make good business sense for Hayes and that it would disadvantage Hayes.  
    On this basis, he held the arbitrators conclusion amounted to an error of 
    law.  In my view, the judge was wrong to do so.

[69]

The issue, as decided by the arbitrator, 
    was whether there was a settlement.  He had before him evidence concerning 
    the cubic metre costs proposed by Hayes, the costs expended and a document 
    that he considered reflected the arrangement between the parties.  Whether 
    the settlement made good business sense was a factor the arbitrator was entitled 
    to take into account in determining whether the settlement had been made, 
    along with all other relevant evidence that bore on the subject.  If there 
    were no evidence to sustain his conclusion or if his conclusion was not reasonably 
    supportable on the available evidence, the judge could have concluded the 
    arbitrator made an error in law, but the judge was not entitled to substitute 
    his view of good business sense or to consider the weight to be given to evidence 
    concerning Hayes anticipated per cubic metre costs.

[70]

Hayes contends there was no evidence 
    to support the arbitrators conclusion of a settlement and in argument referred 
    to the cross-examination of Messrs. Lyons and Colemen.  An examination of 
    their testimony-in-chief shows there was evidence on which the arbitrator 
    could have reached his conclusion.

[71]

Mr. Lyon testified the parties came 
    to a settlement on production, market curtailment and a strike and came to 
    a settlement on inventory, development inventory costing.  He confirmed the 
    issue between the parties was Hayes wanting to inventory the costs and Weyerhaeusers 
    opposition to that.  It was Weyerhaeusers objective to [p]ut it behind us 
    with this settlement for 2003.  He described the agreement as a saw-off 
    settlement.  Mr. Coleman testified that he would not have signed the agreement 
    if he were not to have believed that 2003 was resolved in its entirety. 
     In addition, there were documents to which the arbitrator referred as supporting 
    his conclusion.

[72]

In my view, the question presented for 
    appeal drew the parties and the judge into a factual inquiry.  It stated no 
    question of law and the judge did not identify the question of law that might 
    have been imbedded in it.  There was evidence on which the arbitrator could 
    have reached the conclusion he did.  I cannot conclude the arbitrator made 
    an error of law deciding the parties settled all outstanding 2003 issues.

[73]

I would allow this appeal and dismiss 
    Hayes appeal of the arbitrators award.

The 
    Honourable Mr. Justice Chiasson

I agree:

The Honourable Mr. Justice Low

I agree:

The Honourable Mr. Justice Lowry


