Costs results in domestic commercial arbitrations are often based on, or consistent with, the norms of international commercial arbitration and can differ greatly from what is expected based on standard litigation practice. This can be an unpleasant surprise for counsel and their clients who are unfamiliar with this. In Allard v The University of British Columbia Justice Douglas confirmed that the “starting point” for an award of costs in domestic commercial arbitration is that the winner is entitled to its reasonable legal fees and disbursements, or what is referred to in litigation practice as “solicitor client costs” or “indemnity costs” and not “party party” costs, which many litigators would expect. There are, of course, exceptions to this “normal rule” for assessing costs. Alberta’s Arbitration Act, RSA 2000, c A-43 perhaps provides one, as is discussed below.
The dispute in this case arose under a Gift Agreement where the Petitioners made a donation to the University of British Columbia (UBC) in exchange for certain naming and branding rights. The Gift Agreement required UBC to use the name “Peter A. Allard School of Law” on degree certificates. The parties disagreed about whether this naming requirement also included certificates for LLMs and PHDs in law, which are not granted by the Faculty of Law but by the Faculty of Graduate and Postdoctoral Studies. The Arbitrator found in favour of UBC and determined it was not required to use “Peter A. Allard School of Law” on those other degrees and awarded UBC “its actual reasonable costs”.
The Petitioners sought leave to appeal the award and costs award. On the issue of costs, the Petitioners took the position before the Chambers Judge, Madam Justice Douglas, as they had before the Arbitrator, that “it is wrong for an Arbitrator to consider that the ‘default’ position [on costs] to be that a successful party should receive its actual reasonable costs”. The Petitioners argued that actual reasonable costs were “indemnity” or “elevated costs” and the Arbitrator failed to identify any fact findings or misconduct in the Award that would justify an award of “elevated costs” against them in this case. The Petitioners argued this “default rule” effectively shifted the burden to them to demonstrate why elevated costs should not be ordered. They further argued that there was no case law to support the “default rule” or any indication that the Legislature intended to create a presumption that an unsuccessful party in a domestic arbitration must pay “elevated costs”. They also argued that this issue was a matter of general public importance for which leave should be granted because imposing “elevated costs” as a matter of course could have an unintended chilling effect on domestic arbitrations.
Justice Douglas rejected the Petitioners’ submissions, noting that the Arbitrator was not required to find misconduct on the part of the Petitioners to award the successful party its actual reasonable costs. She accepted that while costs fall within the discretion of the Arbitrator, 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”. That is, the winner’s “reasonable legal costs” is appropriately the “starting point” for an arbitrator’s discretionary costs analysis in commercial arbitrations. In support of this conclusion she noted the case of Goel v Sangha, 2019 BCSC 1916.
Regarding the Petitioners’ warning of a potential “chilling effect” from indemnity cost awards, Justice Douglas pointed to Hansard, stating that the costs provisions in the Arbitration Act would “…preserve a desirable feature of arbitration: namely, the ability of a party to recover its actual costs.”
In considering the application of this case, practitioners should note that the costs provisions in the Provinces’ domestic arbitration acts sometimes differ. For example, in Alberta section 53(b) of the Arbitration Act, RSA 2000, c A-43 arguably establishes that the default scale for awarding costs is “party party costs”. There is a significant body of case law in Alberta standing for the proposition that “party party costs”, at least in the litigation context, should roughly equate to 40-50% of actual legal costs. See, for example: McAllister v Calgary (City), 2021 ABCA 25, paras 41 to 53 and the cases cited therein. Cases in Alberta ( see K-Rite Construction Ltd v Enigma Ventures Inc, 2020 ABQB 566) have acknowledged the “normal rule” for costs in commercial arbitrations referred to in Goel v Sangha but not applied it.
For the earlier Case Note on this matter see B.C. – authority to award actual reasonable legal costs a “desirable feature” not a “chilling effect” – #442 and for the Case Note on Goel v Sangha see B.C. – no need to give reasons when not departing from normal rule on costs – #287 and for K-Rite Construction Ltd v Enigma Ventures Inc. see Alberta – unambiguous wording on arbitration costs in standard contract does not merit court intervention – #377.