In 0718698 B.C. Ltd. v. Ogopogo Beach Resorts Ltd., 2019 BCSC 1503, Mr. Justice S. Dev Dley remitted a costs awards back to the arbitrator so that the party ordered to pay 75% of actual legal fees would have a meaningful opportunity to challenge the other party’s counsel’s accounts. Failure to order disclosure of counsel’s accounts qualified as a denial of natural justice because it prevented the party from undertaking an informed analysis of whether the fees were reasonable.
Through a joint venture, Petitioners and Respondents developed a condominium project in the B.C. interior. Disputes arose and they agreed to resolve them through arbitration. The arbitration last seven (7) years and involved over 40 decisions.
At the conclusion of the arbitration, the parties participated in a hearing specifically held to deal with two (2) issues: distribution of funds and costs. After the hearing, the arbitrator issued a decision on each issue.
(A) distribution of funds – Petitioners argued that the decision should not have been made in the absence of a final audit setting out the Parties’ respective entitlement to the funds.
In initial submissions, Petitioners relied on unaudited financial statements in support of their claim to entitlement of the funds. In subsequent submissions, Petitioners revised their approach and argued that a determination ought not to be made until a final audit was done. The arbitrator did not think that a full audit would “serve any useful purpose” and provided his analysis in support of his conclusions. His fuller reasoning is set out at para. 13 of the reasons.
(B) costs – Petitioners were ordered to pay Respondents $452,398.00 comprised of (i) $305,515.00 representing 75% of Respondents’ actual legal fees and disbursements and (ii) $146,882.00 representing 75% of the arbitrator’s fees.
Respondents had argued that they were entitled to their actual legal costs whereas Petitioners had argued that each party should bear its own costs or that costs be limited to a party/party scale. In the alternative, Petitioners further argued that if costs were to be awarded as actually incurred, then Petitioners should receive disclosure of the Respondents’ counsel’s file so that Petitioners could determine the reasonableness of the fees. Petitioners invoked Williston Navigation Inc. v. BCR Finav No. 3, 2007 BCSC 190, paras 50-57.
Respondents’ counsel did disclosed details of their hourly rates, hours billed, disbursements incurred and confirmation that counsel’s accounts had been paid. None of the materials provided a description of the work done.
Dissatisfied with both decisions, Petitioners applied under section 30 of B.C.’s Arbitration Act, RSBC 1996, c 55, alleging arbitral error due to failure to observe the rules of natural justice.
Dley J. observed that section 30 is limited to a court granting relief on the basis of a denial of justice. “It does not encompass disagreement with an arbitrator’s decision, which is more properly the subject of a s. 31 analysis.”
Dley J. considered whether either of the two (2) decisions resulted from a denial of justice.
(A) distribution of funds – Dley J. characterized Petitioners’ change of argument as a response to their perceived chance of success. “When it appeared that their argument might not be persuasive, the petitioners changed course and demanded that an audit be done instead.”
Dley J. saw the change of position as not an argument for “the production of existing evidence but, rather, the creation of new evidence.” He identified the change as “an attempt to re-argue their previous submission on the basis that new evidence might provide a reason for the arbitrator to change his mind.”
Dley J. refused to consider the arbitrator’s handling of Petitioners’ argument on the distribution of funds as a denial of justice. Instead, he considered Petitioners’ argument as merely disagreement with the result.
“ The arbitrator considered the petitioners’ argument and determined that the capital account was not relevant to his analysis of the issue. That is not a denial of natural justice. He made a decision that was within his jurisdiction to do so. The fact that the petitioners disagree with the reasoning and decision is not the basis for a complaint that the arbitrator failed to observe the rules of natural justice.”
(B) costs – Petitioners did not challenge the 75% allocation. Rather, they argued that that they had not been provided with sufficient information detailing the fees and disbursements without which they could not assess the reasonableness of the fees and disbursements. Petitioners argued that the arbitrator failed to observe the rules of natural justice.
Dley J. referred to paras 49-53 of Williston Navigation Inc. v. BCR Finav No. 3 and concluded that there “is merit to petitioners’ submissions”. He determined that “without some access to the billing records or the solicitor’s files, an informed analysis cannot be made as to the reasonableness of the accounts. This was a failure to observe the rules of natural justice.”
Dley J. did not simply set aside the costs award. He held that there was no reason to set aside the costs award set as actual legal fees and disbursements as it was within the arbitrator’s jurisdiction to decided. Rather, he remitted to the arbitrator reconsideration of the question of disclosure. “He has a number of options to consider, which may include orders for the disclosure of the respondents’ counsel’s files, disclosure of both parties’ solicitor’s files, or the time records describing the work done from one parties’ counsel or from all counsel.”
urbitral note – The approach set out in Williston Navigation Inc. v. BCR Finav No. 3 paras 50-57 provides guidance as to how to afford procedural fairness when determining costs in arbitration. That earlier case reasoned that:
(i) the rules of natural justice and the duty of fairness are variable, dependent on the specific context and circumstances of each case;
(ii) the fact that counsel has billed a certain sum does not necessarily make the fee objectively reasonable;
(iii) the party who paid them initially may have “made a very poor bargain”, demanded more work than was appropriate, retained more lawyers/more expensive lawyers than circumstances warranted; and,
(iii) to determine if legal fees are reasonable, the other party must be able to examine the other party’s counsel’s work and obtain disclosure of their file. To have a meaningful opportunity to challenge the costs claimed, access to billing records is justified.
Dley J.’s choice to remit the determination of disclosure while confirming the jurisdiction to award 75% of the actual legal costs confirmed B.C.’s support of the arbitral process and avoided unnecessary confusion/disagreements for the parties once the returned before the arbitrator.