Appealing An Arbitral Award? The BC Court Of Appeal Sheds Light On What Constitutes A Question Of Law And A Breach Of Natural Justice

Why this decision is important

In MSI Methylation Sciences, Inc. v Quark Venture Inc, 2019 BCCA 448, the Court of Appeal for British Columbia recently clarified the Court's approach to appeals from an arbitral award.

Justice Hunter, writing for the Court, addressed an appeal on the grounds of a breach of natural justice, finding that there was no error if the arbitral tribunal determines an issue that is within the parameters of the pleadings. In addition, the Court of Appeal created a helpful framework for determining when appeals may be made from arbitral awards, and, in doing so, refined the test for determining what constitutes a question of law.

Overview of Proceedings

The respondent MSI Methylation Sciences, Inc. ("MSI") developed a drug to treat major depressive disorder which was unsuccessful in its first clinical trial. MSI continued the drug's development in an additional trial for which the appellant Quark Venture ("Quark"), a venture capital firm, entered into a financing agreement (the "Investment Agreement") with MSI in September of 2016. Quark agreed to subscribe for units of MSI comprised of preferred shares in four separate tranches totalling US$30 million. Quark made the first tranche in the amount of US$1 million. Quark then informed MSI shortly before the second tranche was due that it would not be making further payments.

On March 16, 2017, MSI commenced arbitral proceedings against Quark, pursuant to the Investment Agreement's arbitration clause for damages in lieu of specific performance in the amount of US$29 million for Quark's failure to pay the remaining tranches. Quark counter-claimed for the return of the US$1M that it had already paid. The Arbitrator dismissed Quark's counterclaim and allowed MSI's claim in the amount of US$20 million. In calculating the basis for damages, the Arbitrator determined that MSI was entitled to the opportunity to receive the value of the promise of US$30 million in exchange for an issuance of shares from treasury.

MSI brought an application at the Supreme Court of British Columbia ("BCSC") to enforce the arbitral award.1 Quark brought an application to set aside the award on the grounds that the Arbitrator failed to observe the rules of natural justice, and sought leave to appeal the award based on various errors of law. The chambers judge dismissed Quark's application, and allowed MSI's application for leave to enforce the arbitral award. Quark appealed the decisions.

The Court of...