B.C. – Question of statutory interpretation raises extricable error of law – #718

In Insurance Corporation of British Columbia v EB, 2023 BCSC, Justice Crossin heard an application to set aside an award and both an application for leave to appeal an arbitral award and the appeal, but dismissed the appeal on its merits. The Applicant had correctly identified two extricable errors of law: interpretation of a statute; and whether the test set out in case law had been properly applied. However, he found that the Arbitrator made no legal error. He also dismissed the set aside application because the Arbitrator made no “arbitral error” by exceeding her jurisdiction.

The first arbitration -The proceeding was a statutory arbitration brought pursuant to s. 148.2 of the Insurance (Vehicle) Regulation, B.C. Reg. 447/83, Part 10 [Regulation], which followed a motor vehicle accident in which the Respondent was involved. The Applicant was the insurer. The parties submitted to arbitration the uninsured motorist protection coverage issue under the former BC Arbitration Act, RSBC 1996, c. 55.  Don’t stop reading!  The details of the workings of this regulatory scheme are not relevant for this case note. The issues summarized here are relevant to the principles at play in respect of any appeal or set-aside application under provincial arbitration legislation. 

The arbitrator rendered a preliminary damages award. The parties then resolved two of the outstanding issues relating to the deductible amounts from the damages award. The parties disagreed about the Respondent’s claim that the Applicant insurer was required to pay the Respondent’s equal share of the arbitrator’s fees and expenses as a disbursement. 

The second arbitration – The parties submitted that question to a second Arbitrator, and agreed that the BC Supreme Court Civil Rules, B.C. Reg. 168/2009 [Rules] would apply.  The second Arbitrator found in favour of the Respondent and determined that the first arbitrator’s fees and expenses were properly viewed as disbursements and could be awarded as part of the costs on a party and party basis to be paid by the Applicant.

The set aside applicationSection 30 of the former BC Arbitration Act, RSBC 1996, c. 55 allowed the Court to set aside an award if the arbitrator committed an “arbitral error”.  Section 1 of the Act  defines “arbitral error” and included circumstances where an arbitrator exceeds their jurisdiction.  Justice Crossin noted that the new Arbitration Act, SBC 2020, c. 2, contains similar provisions. [See, for example, s. 58( c)]. The Applicant argued that the Arbitrator had exceeded her jurisdiction in making the costs award, particularly, that the Applicant “pay the [R]espondent’s equal share of the arbitrator’s fees and expenses as party and party costs”.

Justice Crossin dismissed this argument. The second Arbitrator was asked to determine whether an arbitrator’s fees are recoverable as disbursements: “With respect, I do not consider it sound to submit that the arbitrator exceeded her authority by answering the very question that was asked of her… [T]he principle (sic) issue before the arbitrator in this case was whether arbitrator’s fees fall within the meaning of disbursements under party and party costs.” (para. 65)

The application for leave to appeal –  Section 31 of the former Arbitration Act  allowed  appeals on questions of law arising from an arbitral award if the parties consent or the court grants leave. The Applicant argued that leave should be granted on the following errors of law:

1.  The second Arbitrator erred in law interpreting section 148.2 of the Insurance (Vehicle) Regulation as giving an arbitrator appointed under the Regulation, Part 10, Division 2, jurisdiction to make an award that the Applicant pay the Respondent’s equal share of the first arbitrator’s fees and expenses as party and party costs under the Rules. (“Error #1”)

2.  The second Arbitrator erred in law in finding that an arbitrator’s fees and expenses are party and party costs under section 148.2(3) of the Insurance (Vehicle) Regulation, B.C. Reg. 447/83. (“Error #2”)

3.  The second Arbitrator erred in law in finding that the first arbitrator’s fees and expenses are party and party costs under the BC Supreme Court Civil Rules, Rule 14 and Appendix B. (“Error #3”)

Justice Crossin reviewed the principles set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 and Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32  to determine whether any of these grounds gave rise to an extricable error of law (para. 38).  He found as follows.

As to Error #1, a question of statutory interpretation raised a question of law. However, an interpretation of the “plain wording” of the Regulation was that it did not preclude the possibility of an award of arbitrator’s fees as a disbursement:

“[86]      The purpose and effect of s. 148.2(2) is to foreclose the application of s. 11(c) of the Arbitration Act in assessing costs of an arbitration. That section allowed for the recovery of “actual reasonable legal fees” and “disbursements, including the arbitrator’s fees, expert witness fees and the expenses incurred for the holding of the hearing.”

[87]      The provision must be read with s. 148.2(3) of the Regulation which states that “costs of an arbitration may only be ordered on a party and party basis”. The natural extension of s. 148.2(3) is to then determine what qualifies as a party and party cost. The Regulation does not offer any definition for party and party basis; nor does the Interpretation Act, R.S.B.C. 1996, c. 238.

[88]      In this case, the analysis of what is included as a cost on a party and party basis must be made in accordance with the Rules. It is Rule 14-1(5) that permits the recovery of disbursements under party and party costs. The Rules, appropriately in my view, consider party and party costs to include disbursements.

As to Error #2, the question was not relevant to the proposed appeal because the parties agreed to be bound by the costs provisions in the BC Supreme Court Rules, not those in the Regulation.

As to Error #3, this raised an extricable question of law: can an arbitrator’s fees be considered disbursements which can be ordered as part of party and party costs under the BC Supreme Court Rules? The issue concerned whether the second Arbitrator had applied the correct legal test under the leading case to decide this issue: Mackenzie v. Rogalasky, 2014 BCCA 446, leave to appeal to SCC ref’d, 36266 (14 May 2015). Justice Crossin concluded that Rogalasky did not set out a neat list of factors to be considered and did not, as the Applicant argued, create a new category of disbursement.

After granting leave to appeal – without weighing in on the issue of the appropriate standard of review – Justice Crossin dismissed the appeal.

Editor’s Notes:

First, compare the process on this appeal to that in Esfahani v Samimi, 2022 ABCA 178 (where the ABCA decided that leave to appeal must be sought first before an appeal will be heard) and The Tire Pit Inc. v Augend 6285 Yonge Village Properties Ltd., 2022 ONSC 6763 (where the ONSC also heard and decided a leave application at the same time as the appeal on the merits). See Case Notes discussing these decisions: Alberta – Appeal process under s. 44(2) of the Arbitration Act clarified – #623 and Ontario – Leave to appeal award application and appeal dismissed together – #692.

Second, this case stands as a reminder that parties have choices in the procedural rules they select for the conduct of the arbitration. In this case, Justice Crossin noted that under the Regulation, “costs of an arbitration may only be ordered on a party and party basis”.  However, the definition of that term was to be found in the Rules, which Justice Crossin decided includes disbursements – and does not preclude an arbitrator’s fees as a disbursement.  In another case involving an appeal of a commercial arbitral award (that is, not subject to a statutory regime), the decision to apply the Rules could have had significant financial consequences. The cost award may well have been higher, as it likely would not have been limited to “party and party costs”.  For example, the former Arbitration Act, s. 11(c), which Justice Crossin found the Regulation was intended to oust, allowed for “actual reasonable legal fees” and “disbursements”.

Third, it is very common for an applicant to seek both to set aside an award and to appeal an award on the same grounds, even though purposes of the two forms of relief are very different – the first seeks to address any unfairness in the procedure, and the second seeks to address legal errors in the arbitrators findings on the merits. In other words, errors of law are often couched as errors of jurisdiction and vice versa.