B.C. – 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.

The dispute involved two (2) of three (3) law firms to a joint retainer agreement to represent a plaintiff in a proposed class action.  To resolve disputes under the retainer, and following a notice of arbitration, Appellant claimed emergency interim relief against Respondent but was unsuccessful before an ad hoc arbitrator.  The ad hoc arbitrator ordered Appellant to pay indemnity costs to Respondent with costs to be assessed in the main arbitration. 

An arbitrator was appointed for the main arbitration. In the arbitration, Appellant requested a class of documents comprised of copies of invoices issued by Respondent’s lawyer including detailed time breakdowns. Respondent objected, citing solicitor-client privilege and relevance.  Respondent submitted that, during the interim relief phase, Appellant had not made an issue of the reasonableness of those costs.  Appellant disputed this submission, pointing out that it had identified concerns about duplication of costs for the interim relief and the defense to the main arbitration.

Appellant’s request for the details was denied by the arbitrator.  In post-hearing briefs on costs, Appellant reiterated its requirement that no duplication occur and argued that it had not been able to verify whether duplication occurred.  The arbitrator issued a December 31, 2018 award (“Award”) which included a dispositive for costs in favour of Respondent assessed on the basis of the information before her but not including the document set sought by Appellant.

Appellant applied under section 30 of the Arbitration Act, R.S.B.C. 1996, c. 55 to set aside the Award.  Respondent applied under section 29 for enforcement of the Award as a judgment or order of the court. In Appleton & Associates v. Branch MacMaster LLP, 2019 BCSC 1733, the chambers judge (i) refused to set aside the Award despite identifying an arbitral error in the form of a breach of natural justice and (ii) granted Respondent’s application to recognize and enforce the Award.

On appeal, a key issue was whether the court in first instance has discretion under section 30(1) to refuse to set aside an award in not exercised in a manner consistent with section 30(2).

(A) “May” – Appellant argued that, once arbitral error had been determined, the chambers judge had no discretion under section 30(1) to refuse to set aside the Award and that the judge’s reasoning in refusing to set it aside was inconsistent with the court’s “limited remedial jurisdiction to do so” under section 30(2).  Respondent argued that “may” is permissive and provides residual discretion to decline to set aside an award and that his reasons, without being explicit, do demonstrate that he conducted a section 30(2) analysis.

The Court held that the judge did not purport to refuse to exercise his discretion under section 30(2) and the Court had therefore to determine whether he did have discretion to refuse under section 30(1).

In its analysis, the Court determined that the discretion to refuse to set aside an award upon a finding of arbitral error is “constrained by the parameters set out in s. 30(2)”.  Referring to section 29 of B.C.’s Interpretation Act, R.S.B.C. 1996, c. 238, R. v. Johnson, 2003 SCC 46 and Heare v. I.C.B.C. (1989), 1989 CanLII 2681 (BC CA), the Court set out approaches to determining the content of the term “may”.  The Interpretation Act provided that the term in legislation is to be construed as permissive and empowering but does not give unfettered discretion.  R. v. Johnson, requires consideration of the legislative purpose and scheme and contextual factors to determine if the term is accompanied by a duty to exercise a given power.  Heare v. I.C.B.C. accepted that the term indicates a power of discretion but it is necessary to consider its scope.

The Court acknowledged three (3) earlier instances in which it had determined that the term “may” conferred less than an absolute discretion – Meek v. Enright (1977), 1977 CanLII 1020 (BC CA), Seaview Land Estates Ltd. v. South (1981), 1981 CanLII 439 (BC CA) and Li v. Global Chinese Press Inc., 2014 BCCA 53 – and two (2) other instances in which the courts had accepted a court had the option of taking no action despite finding arbitral error – Ford Motor Company of Canada Ltd. v. Sheriff, 2012 BCSC 891 and Westnav Container Services Ltd. v. Freeport Properties Ltd., 2010 BCCA 33 leave to appeal ref’d [2010] S.C.C.A. No. 95.

[25] In my opinion, s. 30(1) does not give the court a residual discretion to refuse to set aside an arbitral award upon finding that an arbitral error has been committed.  Section 30(1) gives the court the option of either setting aside or remitting an award if there has been an arbitral error (or if the award was improperly procured), and s. 30(2) sets out the only circumstances in which the court may uphold the award despite the occurrence of an arbitral error”.

The Court added that to reason otherwise would make section 30(2) unnecessary.  It held that “the word “may” in s. 30(1) gives the court the power to set aside or remit the award, and I infer from s. 30(2) that the court has the duty to exercise the power except in the circumstances described in s. 30(2)”.

The Court continued to add further reasons to support its interpretation of the interplay of sections 30(1) and 30(2) but closed with asserting comments on the ‘circumscribed involvement’ of the court in its supervisory role in arbitration.

[29] Consistent with the purpose of circumscribing the involvement of the court, the Legislature has given a supervisory role to the court to identify arbitral errors, but once the court has fulfilled that function, it is left to arbitrators to finalize the resolution of the dispute by having a new arbitration or by having the arbitrator reconsider the award.  If the award is remitted to the arbitrator for reconsideration, it is left to the arbitrator to decide whether the award should remain unchanged after addressing the arbitral error.  The exception the Legislature decided to create is set out in s. 30(2) where the error consists of a defect in form or a technical irregularity and no substantial wrong or miscarriage of justice would be caused by upholding the award”.

(B) Summary assessment – As part of its subsequent analysis of the chambers judge’s reasons, the Court mentioned the judge’s reliance on Williston Navigation Inc. v. BCR Finav No. 3, 2007 BCSC 190 para. 53 as support for identifying a breach of natural justice.  That decision supported the argument that a summary assessment of costs, without compelling a party entitled to costs to produce its accounts, is a breach of natural justice.

The chambers judge did not mention or imply that he looked to section 30(2) to exercise his discretion and therefore the Court looked to section 30(2) on appeal.

An appeal is taken from the order made, not the reasons for judgment, and the order should not be set aside if it can be supported on other grounds that were before the judge.  It is therefore necessary to consider whether the judge could properly have exercised his discretion under s. 30(2) to refuse to set aside the award”.

Section 30(2) provides two (2) “prerequisites” for refusing to set aside an award for arbitral error: the error consists of a defect in form or a technical irregularity; the refusal would not constitute a substantial wrong or miscarriage of justice.  The Court held that the first was not engaged on the record.

I agree with the statement of Justice Goepel at para. 53 of Williston that the summary assessment of costs without requiring production of relevant documents is a breach of the rules of natural justice that is more than a defect in form or a technical irregularity.  The summary assessment of costs without the production of relevant documents is not a defect in form and, although it may be considered to be an irregularity, it is not a technical one in the present context.  The arbitrator made a ruling that the requested documents did not have to be produced and proceeded to summarily assess the costs of the interim relief application without the consent of Appleton.  This is not an irregularity which can be properly characterized as technical”.

(C) Set aside or remit – The Court paused between setting aside and remitting the Award.  It acknowledged that Appellant had expressed openness to the Court remitting the Award to the arbitrator for reconsideration.  The Court, however, considered “it doubtful that a party can constrain the discretion the court does have under s. 30(1) to either set aside the award or remit it to the arbitrator by limiting the requested relief to only one of those remedies”.

Because Appellant also sought relief expressed as “[s]uch other order as the court deems just”, the Court held that remitting the Award was ‘encompassed’ by Appellant’s application.

The Court remitted the Award after determining at para. 39 that (i) setting it aside would not be appropriate when the arbitral error did not affect other determinations and (ii) remitting it may appear “unfortunate” where the arbitral error “may have little, if any, effect on the amount of the costs assessed”.  Remitting the Award was consistent with how the Arbitration Act “narrowly circumscribed” the court’s role of supervising arbitral awards.

urbitral note – First, see Gerald W. Ghikas, Q.C., “Costs in Domestic Arbitration: Who Decides How to Decide What is Reasonable?”, the Advocate, Vol. 78, Part I, January 2020, pages 29-38. 

Second, the Court of Appeal at para. 35 commented on the arbitrator’s summary determination of costs.  The Court’s view that a summary determination of costs is a breach of natural justice is now expressly overtaken by section 50(2)(d) of B.C.’s new Arbitration Act (Bill 7 – 2020: Arbitration Act) which passed Third Reading March 3, 2020 and will come into effect September 1, 2020. 

The Court was aware that the new Arbitration Act would later come into force.  However, that new provision had nothing to do with the appeal because the order below was made under the still-current Arbitration Act.  The Court was advised of the new legislation and did not err in not referencing it. 

The Court of Appeal reasons list May 28, 2020 as the date of the hearing, two (2) months after the March 3, 2020 reading of legislation which would reverse the Court’s determination from a breach of natural justice to an application of the express legislative provision.

The new provision in section 50(2)(d) provides a clear option for the arbitral tribunal to “summarily determine the amount of costs”.  What is purported to be a breach of natural justice is now legislated expressly.

50 (1) A costs award may be made at any time during arbitral proceedings, including at the termination of the proceedings, and may be made payable at any time.

(2) Unless otherwise agreed by the parties, the costs of an arbitration are in the discretion of the arbitral tribunal, which may, in awarding costs,

(a) include the following as costs:

(i) the fees and expenses of the arbitrators and expert witnesses;

(ii) legal fees and expenses;

(iii) any administration fees of an institution;

(iv) any other expenses incurred in connection with the arbitral proceedings,

(b) specify the following:

(i) the party entitled to costs;

(ii) the party who must pay the costs;

(iii) the amount of costs or method of determining that amount;

(iv) the manner in which the costs must be paid,

(c) determine the amount of a costs award by reference to actual reasonable legal fees, expenses and witness fees, and

(d) summarily determine the amount of costs.

(3) If a party makes an offer to another party to settle the dispute or part of the dispute and the offer is not accepted, the arbitral tribunal may take that fact into account when awarding costs of the arbitration.

(4) The content of an offer to settle the dispute or part of the dispute must not be communicated to the arbitral tribunal unless the arbitral tribunal has issued an arbitral award determining all aspects of the dispute other than costs”.

Third, for a recent decision on costs which takes a different approach to the scope of the evidence relied on by an arbitrator to determine costs, see the recent Arbitration Matters note “New Brunswick – detailed time summaries not a condition precedent to arbitrator’s ability to award costs” regarding Jammin Rock Resources v. Dowd & Associates, et al., 2020 NBQB 102.  In that decision, Mr. Justice Daniel J. Stephenson denied leave to appeal a cost award which issued in favour of respondents further to their successful pre-hearing motion to determine that claimants’ arbitration was statute-barred.  Stephenson J. refused to characterize the arbitrator’s discretion on costs as equivalent to a taxation.  Despite objections to the summary evidence provided to and relied on by the arbitrator, Stephenson J. wrote that he was not aware of any jurisprudence mandating that arbitrators must have detailed time summaries as a condition precedent to their ability to award costs and that no provision of New Brunswick’s Arbitration Act, RSNB 2014, c 100 mandates that an arbitrator must have detailed computer-generated time summaries prior to allocating costs.  The facts also confirmed the arbitrator’s authority to make a determination with final effect prior to the merits hearing and on documentary evidence.

Fourth, for a recent decision on the reasons appropriate for a costs award, see “B.C. – no need to give reasons when not departing from normal rule on costs” regarding Goel v. Sangha, 2019 BCSC 1916.  Though arbitrators should give reasons for departing from the “normal” costs rule, Madam Justice Lisa A. Warren in that decision 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.