A civil-works contractor recovered more than $2.3 million in arbitration but was awarded 8% annual interest instead of the 59.99% rate specified in its agreement. The British Columbia Court of Appeal refused leave to appeal because the contractor’s challenge concerned contractual interpretation and the characterization of its claim, rather than an extricable question of law.
In RuggedWest Contracting Ltd. v. Jayen Homes Ltd., 2026 BCCA 392, the Court considered the relationship between contractual interest provisions, quantum meruit and the limited grounds for appealing an arbitration award.
The Construction Payment Dispute
RuggedWest Contracting Ltd. entered into three subcontracts with Jayen Homes Ltd. for civil works on a residential development in Surrey, with a combined value of approximately $10 million.
Following disputes over performance and payment, the parties entered into an Amended and Restated Binding Term Sheet in September 2023. Jayen subsequently withheld payment on outstanding invoices, and RuggedWest terminated the contracts in January 2024.
The arbitrator awarded RuggedWest $2,366,598 for completed work, including extra work orders, later reduced by $47,942 in a supplementary award. RuggedWest also claimed more than $2 million in interest at the contractual rate of 59.99%, but Jayen disputed the application of that provision.
The arbitrator accepted Jayen’s position and awarded 8% simple annual interest from January 5, 2024, until payment.
Why the Contractual Interest Rate Did Not Apply
The interest dispute turned on how RuggedWest’s claim was characterized. The arbitrator found that RuggedWest had pursued contractual quantum meruit, seeking reasonable remuneration for work performed, rather than recovery governed by the contractual progress-payment provisions.
In reaching that conclusion, he examined the agreement, termination circumstances, pleadings and valuation evidence. Although the calculation relied on subcontract prices, change orders and completed work, the arbitrator treated the resulting award as a lump-sum valuation into which the individual progress claims and their timing had been absorbed.
He therefore concluded that the contractual interest provisions did not apply and exercised his discretion under section 51 of the Arbitration Act to award interest at 8%.
The Limits of Appealing an Arbitration Award
RuggedWest argued that the arbitrator had incorrectly characterized its claim and failed to apply the agreed interest rate.
Under section 59 of the Arbitration Act, an appeal from an arbitral award must raise a question of law. Contractual interpretation involving the surrounding circumstances generally raises questions of mixed fact and law, which cannot independently support leave to appeal without an identifiable extricable legal error.
Justice Butler found that RuggedWest’s proposed appeal challenged the arbitrator’s interpretation of the agreement and assessment of the claim presented. The arguments concerning the arbitrator’s authority to award interest under section 51 and the survival of contractual interest following termination likewise failed to establish an independent question of law.
The Court refused leave to appeal. It did not determine that the 59.99% interest provision was unenforceable or that the arbitrator’s interpretation was the only permissible one.
Significance for Construction Arbitration
The decision illustrates how the basis of a construction payment claim can affect the application of contractual interest provisions. Although the arbitrator used subcontract pricing and completed-work evidence to assess RuggedWest’s entitlement, the characterization of the award as contractual quantum meruit led him to apply a different interest rate. Perhaps if the contractor had plead or characterized their claim as a contractual claim as opposed to one in quantum meruit, then the contractor may have been awarded its extraordinary interest rate of 59.99%.
The case also demonstrates the limits of appellate intervention in arbitration. An arbitrator’s interpretation of contractual payment provisions involving a non-standard, highly customized contract will likely involve mixed questions of fact and law that cannot be reconsidered through an appeal under section 59. Under other circumstances, such as where the parties use a standard-form contract, the interpretation by the arbitrator may be more likely to be subject to review.
ATAC LAW represents owners, developers, contractors and subcontractors in construction litigation and arbitration, including payment disputes, contractual interpretation and proceedings concerning arbitral awards.
