Alberta – unambiguous wording on arbitration costs in standard contract does not merit court intervention – #377

In K-Rite Construction Ltd v. Enigma Ventures Inc, 2020 ABQB 566, Madam Justice Donna L. Shelley dismissed challenges to a costs award, holding that awarding costs is discretionary and generally will be a question of mixed fact and law.  Shelley J. held that, absent some form of improper consideration, arbitrators have full discretion as to costs, may not be bound by traditional rules regarding the award of costs and using their discretion does not amount to an error of law.  Shelley J. also dismissed Applicants’ challenges to the arbitration agreement’s costs provisions contained in an industry-specific contract.  Despite the potential importance that standard forms may arguably have in an industry, unambiguous wording does not merit the court’s intervention.

K-Rite Construction Ltd. and 1856050 Alberta Ltd. (“Applicants”) and Enigma Ventures Inc. (“Respondent”) engaged in arbitration governed by the Rules of Arbitration of CCDC 2, Form CCDC 40 – 2005 (“CCDC Rules”) issued by the Canadian Construction Documents Committee(“CCDC”). (To access a non-official version of the CCDC Rules available on-line for assistance in following the issues raised in the Shelley J.’s reasons, view this version posted on-line.  Readers should access the official version from the CCDC).

Following release of the award resolving the merits of the dispute (“Award”), the arbitrator released an award determining costs (“Costs Award”).  In his reasons to determine costs, the arbitrator relied on clauses 19.3 and 19.4 of the CCDC Rules as well as section 53(2) of the Arbitration Act, RSA 2000, c A-43.

19.3 Legal Costs – The arbitrator:

a)      may decide which party shall bear the costs of legal fees and legal expenses of the successful part, if they were claimed during the arbitration;

b)      may apportion those costs if the arbitrator considers it just and reasonable to do so, and

c)      in either event, shall specify the amounts of those costs or the manner of determining those costs.

19.4 Legal Fees not Restricted – In making a decision under clause 19.3, the arbitrator is not limited to awarding the legal fees and legal expenses which a court may award to a successful party in a civil judicial proceeding”.  

Article 53 of the Arbitration Act sets out broad rules for those arbitration subject to it:

53(1) An arbitral tribunal may award the costs of an arbitration.

(2)  The arbitral tribunal may award all or part of the costs of an arbitration on a solicitor‑and‑client basis, a party‑and‑party basis or any other basis but if it does not specify the basis, the costs shall be determined on a party‑and‑party basis.

(3)  The costs of an arbitration consist of the parties’ legal expenses, the fees and expenses of the arbitral tribunal and any other expenses related to the arbitration.

(4)  If the arbitral tribunal does not deal with costs in an award, a party may, within 30 days after receiving the award, request that it make a further award dealing with costs.

(5)  In the absence of an award dealing with costs, each party is responsible for that party’s own legal expenses and for an equal share of the fees and expenses of the arbitral tribunal and of any other expenses related to the arbitration.

(6)  If a party makes an offer, in writing, to another party to settle the matter in dispute or part of it, the offer is not accepted and the arbitral tribunal’s award is no more favourable to the party to which the offer was made than was the offer, the arbitral tribunal may take that fact into account in awarding costs in respect of the period from the making of the offer to the making of the award.

(7)  The fact that an offer to settle has been made shall not be communicated to the arbitral tribunal until it has made a final determination of all aspects of the matters in dispute other than costs”.

Dissatisfied with the Costs Award, Applicants sought leave to appeal under section 44(2.1) of the Arbitration Act.  Shelley J. noted that Applicants’ appeal raised sections 44(2), 44(2.1) and 53(2). 

Shelley J. reproduced Applicants’ arguments at paras 8-19 and Respondent’s arguments at paras 20-29.  Her approach lists the competing versions of challenges to costs awards and lists the case law relevant to and supportive of each position.  Her summaries resist further being condensed further and readers are urged to read them in their original form, both for the key arguments made and for the case law cited.

Having set out the key arguments and cases, Shelley J. then focused in on their application to the record before in her analysis at paras. 30-46.

Referring to Chemerinski v. Richter, 2010 ABQB 388 paras 12-13, Shelley J. held that awarding costs is discretionary and generally will be a question of mixed fact and law.  “Only in the very narrow circumstance, where an arbitrator looks at extraneous factors outside the matter referred to them for arbitration, will their cost decision be a question of law”.

Analysing the reasons in CRW v. SJA, 2018 ABQB 1041, Shelley J. added that the court in that case had “concluded that the arbitrator had full discretion as to costs and may not be bound by the traditional rules regarding the award of costs – using that discretion did not amount to an error of law”.  She added that “absent some form of improper consideration, a costs award will not be a question of law” and referred to Best Buy Canada Ltd. v. Roselawn and Main Urban Properties Inc., 2018 ONSC 92.  The latter, at para. 25 determined that, on the record, the court found “no evidence of the Arbitrator having applied an incorrect principle, or having failed to consider a relevant factor”.

Shelley J. further included the result and reasoning in Allen v. Renouf, 2020 ABQB 98.  See the earlier Arbitration Matters note on Allen v. Renouf, “Costs are discretionary, not a discrete legal issue submitted to arbitrator, must be exercised judicially”.  In that case, the court acknowledged that costs awards may raise a question of law if the discretion was not exercised judicially. 

[34] Applying the law to this case, I conclude that the Arbitrator had broad discretion and was not bound by the traditional rules regarding an award of costs by a court in Alberta. Even if an arbitrator acting in the normal course is generally bound by such principles, there is very broad discretion regarding costs in this case granted in the CCDC 40 contract. Therefore, using that discretion does not amount to an error of law absent improper considerations”.

Shelley J. also had the benefit of reading the Award as, initially, Applicants had challenged it too but had withdrawn the challenge. She had read the Award before notice of Applicants’ withdrawal of that challenge. “I am satisfied that the Arbitrator, having had considerably more documentation and information than was put before this Court, was in a better position to consider the complexity involved in the Arbitration”.

In her reasons, at para. 36, Shelley J. records that Applicants did not request further information in connection with the costs application and that, as a result, she was satisfied that the detailed accounts provided to the arbitrator were sufficient for the purpose.

Despite argument by Applicants, Shelley J. further held that CCDC Rules on costs were not ambiguous. “While the Applicants argue that the terms are ambiguous, a plain reading of the CCDC 40 contract clearly confirms an intention to give the Arbitrator broad discretion regarding costs. The Applicants’ interpretation conflicts with clauses 19.3 and 19.4 of the contract. Section 53(2) of the Act is also supportive of the Respondent’s position”.

Shelley J. also held that the matters at stake in the appeal did not meet the standard of importance required in section 44(2.1)(a).  A costs decisions may have significant dollars involved but that, in and of itself, is not determinative to meet the “very high threshold” for section 44(2.1)(a).

[42] The arguments advanced by the Applicants indicate that the matter is principally pecuniary, because they assert a speculative loss in market presence and potential economic hardship as possible consequences. The dollar values are small compared to what Feehan J considered in [Alberta Medical Association v Alberta Health Services, 2019 ABQB 82]. While [Prairie Roadbuilders Limited v Flatiron-Dragados-Aecon-Lafarge, A Joint Venture, 2019 ABQB 934] suggests that serious financial impact may suffice, the Court did not elaborate on specific dollar values. Importantly, the Applicants suggest that at least part of their economic concerns are a result of the current economy, and not the matter that was the subject of the Arbitration. The Respondent disputes that the financial impact is as severe as suggested by the Applicants. I conclude that the pecuniary aspect of this case (that is, the costs award of approximately $135,000) cannot satisfy the requirement of section 44(2.1)(a), as it is not of greater importance than you would expect in a complex commercial arbitration”.

In addressing the issue of “importance”, Shelley J. readily dismissed Applicants’ challenge to the clarity of the CCDC Rules regarding costs.

[43] The only interest raised by the Applicants that may extend beyond the issues in a typical commercial arbitration is the submission that the Court’s assistance is necessary to resolve ambiguity in the standard CCDC 40 contract. However, I have concluded that, given their plain meaning, the clauses are not ambiguous and do not require appellate intervention”.

In closing, Shelley J. further determined that her involvement in the Costs Award would not change much for the parties.  Her potential decision would not change the Award or affect the rights of the parties.  Again, she returned to Applicants’ argument regarding the alleged ambiguity of the CCDC Rules, dismissing that argument in regard to other criteria relevant to the leave to appeal application.

An application of the law to this case suggests that the matter will significantly affect the rights of the parties only if the CCDC 40 contract is considered ambiguous. If not, there is little value for the future because there is no ongoing relationship between these parties, the dollar values are quite low, and the damage award would not change on appeal. At most there might be a reduction in costs”.

Shelley J. dismissed the application for leave to appeal.

urbitral notes – First, the CCDC describes its CCDC Rules, available online at CCDC’s website, as follows:

CCDC 40 – Rules for Mediation and Arbitration of Construction Disputes sets out specific methods for settling disputes incorporating the concepts of negotiation, mediation and arbitration to encourage speedy, inexpensive and voluntary resolutions of construction disputes.

CCDC 40 has been incorporated by reference in CCDC contract forms, including CCDC 2. It is also a standalone document and can be used with other construction contract forms”.

The CCDC Rules, like other well-crafted rules issued by institutions which administer commercial arbitrations, are internally consistent but do not promise unfettered application to all disputes.  Like other institutions’ rules, the CCDC Rules resist piecemeal amendments and partial borrowings and the CCDC Rules caution against such amendments and borrowings.  The following mention appears in the unofficial version accessible through the link above.  (Note: readers should access the official CCDC version which may vary and can be updated at the initiative of the CCDC).

Ed. Notes: These rules have been specifically developed for use with CCDC contract forms. They should not be used for other contract disputes and should not be amended or changed without proper legal advice. These rules may be amended from time to time. Parties should verify that they are using the most current rules when proceeding to arbitration”.

Second, Shelley J.’s summary of Applicants’ and Respondent’s is remarkably effective in summing up complex, competing positions which then serve as preambles to her own ensuing analysis at paras 30 and following.  Unlike many other, valid analyses appearing in court reasons, Shelley J.’s presentations condense the key arguments and related cases submitted by each party and does so as introduction to her own handling of the issues raised. 

Rather than weave the arguments into her analysis or isolate one or another argument when addressing them, Shelley J. invests effort in presenting each in its best light before applying the principles to the facts.  The result provides arbitration practitioners helpful, ready-to-borrow capsules relevant to their own cases as well as the competing version which they must address and anticipate.

Third, Shelley J.’s express reliance on reasoning applied in CRW v SJA, 2018 ABQB 1041, a family law arbitration, demonstrates that principles relating to costs are not compartmentalized by the category of dispute in which the costs awards issue.  For guidance in their own arbitrations, commercial arbitration practitioners can and ought to look for relevant solutions applied in the various court decisions involving family law arbitration.