The Reasoning And The Impact Of The Decision In Sattva Capital Corporation v. Creston Moly Corporation 2014 SCC 53

The recent decision of the Supreme Court of Canada ("SCC") in Sattva Capital Corporation v. Creston Moly Corporation is the most detailed and thorough discussion relating to appeals of commercial arbitration decisions in many years. The timing is important as more and more commercial matters are being dealt with, at first instance, by way of arbitration. The result of the decision is that the first instance will more often be the last instance. Leave to appeal commercial arbitration decisions, traditionally hard to come by, will be even more rarely granted in the wake of the SCC's reasoning.

The underlying dispute dealt with a disagreement between the parties over the amount of a finder's fee to which Sattva Capital Corporation was entitled to following its introduction of Creston Moly Corporation to an opportunity to acquire a molybdenum mining property in Mexico.


On January 12, 2007, the parties entered into a written agreement that required Creston to pay Sattva a finder's fee. Since Creston was publicly traded on the TSXVenture exchange, the finder's fee required TSXV approval. The Agreement provided that Sattva was to be paid a finder's fee equal to the maximum amount that could be paid pursuant to the TSXV Policy Manual. The maximum amount in this case was US$1.5 million.

The SCC reasons accurately capture the dispute in this way:

"The issues in this case arise out of the obligation of Creston Moly Corporation (formerly Georgia Ventures Inc.) to pay a finder's fee to Sattva Capital Corporation (formerly Sattva Capital Inc.). The parties agree that Sattva is entitled to a finder's fee of US$1.5 million and is entitled to be paid this fee in shares of Creston, cash or a combination thereof. They disagree on which date should be used to price the Creston shares and therefore the number of shares to which Sattva is entitled".

Since the share price for Creston had increased following the announcement of the purchase of the mining property there was a serious disagreement between the parties. Sattva asserted that it was entitled to roughly 11 Million shares priced at $0.15. Creston countered that it was entitled to issue roughly 2.4 Million shares priced at $0.70.

Both the Agreement and the finder's fee had to be approved by the TSXV. Creston was responsible for securing this approval. The arbitrator found that it was either an implied or an express term of the Agreement that Creston would use its best efforts to secure the TSXV's approval and that Creston did not apply its best efforts to this end.

The finder's fee would be paid in shares unless Sattva made an election otherwise. The arbitrator found that Sattva never made such an election. Despite this, Creston represented to the TSXV that the finder's fee was to be paid in cash. The TSXV conditionally approved a finder's fee of US$1.5 million to be paid in cash. Sattva first learned that the fee had been approved as a cash payment in early June 2007.

The arbitrator found that Creston "consistently misrepresented or at the very least failed to disclose fully the nature of the obligation it had undertaken to Sattva" and "that in the absence of an election otherwise, Sattva is entitled under that Agreement to have that fee paid in shares at $0.15".

The arbitrator found that Sattva could have sold its Creston shares after a four-month holding period at between $0.40 and $0.44 per share, netting proceeds of between $4,583,914 and $5,156,934. The arbitrator took the average of those two amounts, which came to $4,870,424, and then assessed damages at 85 percent of that number, which came to $4,139,860, and rounded it to $4,140,000 plus costs.

Judicial History

This is the tortured history of these proceedings - remember that the purpose of the arbitration was to get a speedy resolution to a commercial dispute.

The arbitrator found in favour of Sattva.

Creston sought leave to appeal the arbitrator's decision pursuant to s. 31(2) of the Arbitration Act. Leave was denied by the British Columbia Supreme Court (2009 BCSC 1079 (CanLII) ("SC Leave Court")).

Creston successfully appealed this decision and was granted leave to appeal the arbitrator's decision by the British Columbia Court of Appeal (2010 BCCA 239, 7 B.C.L.R. (5th) 227 ("CA Leave Court")).

The British Columbia Supreme Court judge who heard the merits of the appeal (2011 BCSC 597, 84 B.L.R. (4th) 102 ("SC Appeal Court")) upheld the arbitrator's award.

Creston appealed that decision to the British Columbia Court of Appeal (2012 BCCA 329, 36 B.C.L.R. (5th) 71 ("CA Appeal Court")). That court overturned the SC Appeal Court and found in favour of Creston.

Sattva was granted leave to appeal by the SCC.

BCCA - Appeal Court

On the hearing of the full appeal, the court made some interesting findings. The CA Appeal Court allowed Creston's appeal, ordering that the payment of US$1.5 million that had been made by Creston to Sattva on account of the arbitrator's award constituted payment in full of the finder's fee. The court reviewed the arbitrator's decision on a standard of correctness.

The CA Appeal Court found that both it and the SC Appeal Court were bound by the findings made by the CA Leave Court. There were two findings that were binding: (1) it would be anomalous if the Agreement allowed Sattva to receive US$1.5 million if it received its fee in cash, but shares valued at approximately $8 million if Sattva took its fee in shares; and (2) the arbitrator ignored this anomaly and did not address s. 3.1 of the Agreement.

The Court of Appeal found that it was an absurd result to find that...

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