B.C. – authority to award actual reasonable legal costs a “desirable feature” not a “chilling effect” – #442

Relying on provisions of the Arbitration Act, RSBC 1996, c 55 and the British Columbia International Commercial Arbitration Centre’s rules, Madam Justice Karen F. Douglas in Allard v. The University of British Columbia, 2021 BCSC 60 held that the “normal rule” in arbitration is successful parties are entitled to indemnification costs unless special circumstances warrant some other type of costs. When a party is “wholly successful” an arbitrator is not required to make a finding of misconduct against the other party as a prerequisite to awarding actual reasonable legal costs.  Douglas J. excerpted comments made in the legislature when B.C. introduced amendments to its Arbitration Act, RSBC 1996, c 55 to clarify an arbitrator’s authority to award actual reasonable legal fees. B.C. anticipated that authority would “preserve a desirable feature of arbitration: namely, the ability of a party to recover its actual costs”. Douglas J. observed that the legislature’s stated intent “undermines” concern for any alleged unintended “chilling effect” of awarding indemnity costs because “parties are more likely to pursue commercial arbitration precisely because doing so permits them to recover their actual costs”.

Note: As of September 1, 2020, B.C.’s Arbitration Act, RSBC 1996, c 55 has been replaced by the Arbitration Act, SBC 2020, c 2 and the British Columbia International Commercial Arbitration Centre is now the Vancouver International Arbitration Centre.

Petitioners made a donation to Respondent university in exchange for certain naming and branding rights in perpetuity (“Gift Agreement”) but the parties disagreed regarding use of the name set out in the Gift Agreement (“Name”) for “degree certificates”.  Petitioners and Respondent agreed that the Gift Agreement’s mention of “degree certificates” included JD certificates issued by Respondent’s Faculty of Law but disagreed on whether “degree certificates” also included PhD in law and LLM degrees (“Graduate Degree Certificates”).  The full text of section 6.1 “Naming” appears at para. 23 of Douglas J.’s reasons.

Petitioners argued that Graduate Degree Certificates should include a reasonable but not exclusive reference to the Name.  Respondent resisted use of the Name on Graduate Degree Certificates, submitting that grants of Graduate Degree Certificates issue on recommendation of Respondent’s Faculty of Graduate and Postdoctoral Studies and not its Faculty of Law.

Petitioners served an August 3, 2018 notice of arbitration.  The British Columbia International Commercial Arbitration Centre (now the Vancouver International Arbitration Centre) administered the arbitration.  Following an April 24 and 25, 2019 hearing, the arbitrator issued an August 29, 2019 award (“Award”) and a November 20, 2019 award clarifying the award to Respondents of actual reasonable costs (“Costs Award”). 

Petitioners sought leave to appeal the Award and the Costs Award pursuant to section 31 of the Arbitration Act, RSBC 1996, c 55. (Note: That legislation has been replaced by B.C.’s new Arbitration Act, SBC 2020, c 2 which came into effect September 1, 2020.)

Petitioners raised three (3) questions which they presented as questions of law, the first and second concerned the Award and the third concerned the Costs Award.  See para. 7 for the full statement of the questions.

This note focuses on the Costs Awards (below) but, before doing so, also flags certain comments Douglas J. made in her reasons.

(i) Standard of review – At para. 8, Douglas J. noted that Petitioners submitted that a standard of correctness applied because their appeal arose from statute and Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 had changed the standard of review for commercial arbitration awards from reasonableness to correctness.  Douglas J. determined that she did not have to decide the standard because Petitioners met neither standard.

[53] I conclude that the petitioners’ first proposed ground gives rise to no extricable question of law. It is unnecessary for me to decide whether Vavilov changed the standard of review for arbitral awards under the Arbitration Act because I find that the petitioners’ first proposed ground has no arguable merit when judged on either standard: Nolin v. Ramirez, 2020 BCCA 273 at paras. 33–39. Accordingly, I deny leave to appeal on their first question”.

(ii) “Due respect” and “hands off” – By way of introduction to her analysis, Douglas J. noted the role of Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633, Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 and TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII), [2019] 2 SCR 144 in setting boundaries for the courts and emphasized arbitral parties’ expectations of arbitration.

[14] The test for leave to appeal an arbitration award is not easily met: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 38–40 [Sattva]. Courts must show due respect for the parties’ decision to arbitrate and the commercial arbitral process: TELUS Communications Inc. v. Wellman, 2019 SCC 19 at paras. 54–56 [TELUS]. The modern “hands off” view is that arbitration is an autonomous, self-contained, and self-sufficient process where parties agree to have their disputes resolved by an arbitrator, not the courts: TELUS, at para. 56.

[15]  The limited jurisdiction of courts to hear arbitral appeals promotes efficiency and finality, the central aims of commercial arbitration: Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 at para. 1 [Teal Cedar]. As noted by our Court of Appeal in Boxer Capital Corporation v. JEL Investments Ltd., 2015 BCCA 24 at para. 3 [Boxer], commercial arbitration is intended to provide a speedy and, in the vast majority of cases, final determination of the parties’ dispute”.

(iii) Interpretation of contracts – As part of her analysis, Douglas J. noted certain limits to the courts’ role when invited to consider an arbitrator’s contractual analysis.  Douglas J. also added comments on the proper sequencing of the courts’ own analysis.

[39] As noted by the Supreme Court of Canada in Teal Cedar, to launch into the merits of an arbitrator’s contractual analysis (whether incorrect or unreasonable) is “to put the cart before the horse”. The analysis must first be characterised as raising a legal question and can only be reviewed on the basis of that characterisation:  Teal Cedar, at para. 60”.

Douglas J. also urged not to conflate an argument that the arbitrator altered a legal test when applying it and an argument that the application ought to have produced a different result.

[41] Great care must be taken to distinguish between arguments that a legal test has been altered in the course of its application, and one alleging that the application of the legal test should have resulted in a different outcome: MSI, at para. 72. I am not persuaded that the Arbitrator altered the principles of contractual interpretation in reaching his conclusion. Ultimately, I conclude that the petitioners’ essential complaint is that his interpretation of the Gift Agreement ought to have resulted in a different outcome. That is a non-appealable question of mixed fact and law”.

(iv) Costs Award – At paras 68-82 Douglas J. considered Petitioners’ challenge to the Costs Awards. referred to article 11 of the Arbitration Act and Rules 41 and 21(2) of BCICAC’s Domestic Commercial Arbitration Rules of Procedure.

In the Award, the arbitrator noted that Respondent sought “costs of the arbitration” and that he would “give reasons in the event that there is a deviation from the principle of costs follow the event”.

Respondent sought its “actual reasonable legal costs”.  It argued that the Arbitration Act and the BCICAC Rules “dictate, absent misconduct, that costs follow the event”.  Petitioners argued against applying a legal presumption or default position which favoured costs on a full indemnity basis.  Petitioners argued that the arbitrator should either deny costs or cap Respondent’s costs at $30,000.00.

The arbitrator rejected Petitioners’ submissions that indemnity costs are “elevated” in arbitration.

[25] The Claimants have asserted forcefully that it is wrong for an Arbitrator to consider that the “default” position is that a successful party should receive actual reasonable costs. The authorities cited in fact support a conclusion that provided a party is determined to have been successful and that there is no reason to parse success, then the issue is whether considering all of the factors involved in the exercise of a discretion, there is any reason to award costs on a basis other than actual reasonable costs”.

Despite the way in which the closing lines appear to frame the arbitrator’s approach, Douglas J. recorded that the arbitrator had expressly noted in his Costs Award that he did not base his decision on a default position.  Rather, the arbitrator stated that he based his decision on factors he reviewed, the Arbitration Act, the BCICAC Rules and authorities.  Douglas J. also noted the evidentiary record sought by the arbitrator. “He accepted that UBC’s actual costs were required to be reasonable and ordered UBC to provide a documentary basis for all amounts claimed, subject to solicitor-client privilege”.

Petitioners submitted a number of comments to challenge the approach taken in the Costs Award:

– the arbitrator identified no factual findings to justify an award of actual reasonable costs or any misconduct by Petitioners;

– the arbitrator effectively shifted the burden to Petitioners to demonstrate why the elevated costs were not appropriate;

– the arbitrator’s interpretation of authorities is not supported by section 11 of he Arbitration Act or Rule 41 of BCICAC Rules which merely authorize an award of actual reasonable costs;

 – there is no indication that the legislature intended to create a legal presumption that an unsuccessful party must pay elevated costs; and,

– imposing elevated costs as a matter of course could have “an unintended “chilling effect” on domestic arbitrations”.

Respondent submitted that the Costs Award was not only consistent with the Arbitration Act and the BCICAC Rules but also with Goel v. Sangha, 2019 BCSC 1916. (See urbitral notes below for an earlier Arbitration Matters note on that decision).

Douglas J. dismissed Petitioners’ arguments.  The arbitrator had clearly stated that he was not awarding costs on a default position but identified facts the arbitrator viewed as “deserving of consideration”.   Douglas J. listed those factors at para. 77 of her reasons.

Douglas J. addressed the “normal rule” for costs awards.

[78] While costs fall within an arbitrator’s discretion, the “normal rule” in arbitrations is that the successful party is entitled to “indemnification costs unless there are special circumstances that would warrant some other type of costs”: Goel, at paras. 66–69 and 80; Teal Cedar, at paras. 78 and 85. This conclusion is consistent with the express wording of BCICAC Rule 41(2) which states that “the normal or typical costs award in arbitration includes reasonable legal and other expenses” and Rule 41(4) which states that costs include “the legal and other expenses reasonably incurred in relation to the arbitration””.

Douglas J. added that Respondent was “wholly successful” on the “sole issue” in arbitration and the arbitrator “was not required to make a finding of misconduct by the petitioners as a prerequisite to awarding [Respondent] its actual reasonable legal costs”, citing Four Seasons Hotels Ltd. v. Pacific Centre Ltd., 2002 BCSC 148 paras 76-86.

With regard to Petitioners’ submissions on the legislature’s intent, Douglas J. referred to the Hansard comments made by the Attorney General when introducing the amendments.

An amendment to the Commercial Arbitration Act will clarify an arbitrator’s authority to award costs for actual reasonable legal fees, disbursements, arbitrators’ fees, expert witness fees and expenses of the arbitration hearing. This is an interesting amendment. It will preserve a desirable feature of arbitration: namely, the ability of a party to recover its actual costs. The amendment will help to ensure that the Commercial Arbitration Act remains an attractive option for business people”.

Having cited and underlined portions of that excerpt, Douglas J. observed that the stated intent “undermines” the concern for an unintended “chilling effect”.

[81] This statement undermines the petitioners’ expressed concern about the unintended “chilling effect” of awarding indemnity costs and supports the opposite conclusion: namely, that parties are more likely to pursue commercial arbitration precisely because doing so permits them to recover their actual costs”.

urbitral notes – First, for an earlier Arbitration Matters note on Goel v. Sangha, 2019 BCSC 1916, see “No need to give reasons when not departing from normal rule on costs – #287”.  Though arbitrators should give reasons for departing from the “normal” costs rule, Madam Justice Lisa A. Warren held that it does not follow that arbitrators must provide reasons for not departing from the normal rule.  Warren J. also held that an arbitrator cannot be faulted for following a process adopted by agreement of the parties and that, on appeal, absent further evidence, the court had no role in revisiting an arbitrator’s finding that such an agreement existed in fact.

Second, for another Arbitration Matters notes on costs in B.C., see “Arbitrator’s decision on costs qualifies as an award enforceable as judgment/order of the court – #150” regarding Sangha v. Goel, 2018 BCSC 2267.  In that decision, Mr. Chief Justice Christopher E. Hinkson qualified a costs award as an “award” under B.C.’s Arbitration Act, RSBC 1996, c 55. The costs award issued as a distinct award following a partial award by the arbitrator and was based on a summary presentation of evidence based on an initial agreement by the parties but from which Respondents later unsuccessfully attempted to resile. Hinkson C.J. held that the delays and costs borne by Petitioners were significant reasons for granting Petitioners leave to enforce the award on arbitral costs but also refused to grant Petitioners their court costs due to their occasioning use of one (1) hour more than the time reserved because of same day filing of motion materials.

Third, for comments on the impact of the changes brought to the award of costs when B.C. updated its domestic arbitration legislation, see the earlier Arbitration Matters note “Upcoming legislation overrides determination that summary assessment of costs is arbitral error – #348”. In Appleton & Associates v. Branch MacMaster LLP, 2020 BCCA 187, B.C.’s Court of Appeal held that a court’s discretion to refuse to set aside an award under section 30(1) of the Arbitration Act, RSBC 1996, c 55 upon a finding of arbitral error is “constrained by the parameters” in section 30(2).  The arbitral error consisted of making a summary assessment to determine costs.  However, going forward, section 50(2)(d) of B.C.’s new Arbitration Act (Bill 7 – 2020: Arbitration Act), in effect September 1, 2020, expressly authorizes an arbitrator to summarily determine the amount of costs.  In debating whether to set aside or remit the award, the Court observed that it is doubtful that a party can constrain the court’s discretion under section 30(1) to set aside the award or remit by limiting the requested relief to only one of the remedies.

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