In Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 2437, Justice Perell held that when awarding costs, the discretion of both an arbitrator and the court are the same: both are guided by reasonableness and the fair and reasonable expectations of the unsuccessful party.
The background to this costs application was an arbitration between Electek Power Services Inc. and Greenfield Energy Centre Limited Partnership. During the proceedings, Electek asked the arbitral tribunal to rule on whether it had jurisdiction to hear the dispute. The arbitration hearing proceeded, the tribunal determined that it had jurisdiction, and an award was issued.
Electek brought this application pursuant to s. 17(8) of the Ontario Arbitration Act 1991, S.O. 1991, c. 17, seeking an order “setting aside a ‘preliminary question’” decided by the arbitral tribunal that it had jurisdiction. Electek was successful on the application and sought costs of the application in addition to costs of the arbitration hearing itself.
Justice Perell explained that the court’s discretion to award costs arises under the authority of s. 131(1) of the Courts of Justice Act , R.S.O, 1990, c. C.43, and is to be exercised by considering the factors in s. 57.01 of the Ontario Rules of Civil Procedure, which is really just a codification of the traditional discretionary principles. For arbitrators, s. 54 of the Ontario Arbitration Act provides the tribunal with jurisdiction to award costs, which may include legal fees and expenses, the fees and expenses of the arbitral tribunal and any other expenses related to the arbitration.
As Justice Perell was addressing both court costs and costs of the arbitration, it was necessary to consider whether the jurisdiction of the court awarding costs under the Courts of Justice Act and Rules of Civil Procedure differed from the jurisdiction to award arbitration costs. Ultimately Justice Perell concluded as follows:
“31] There is some vagueness in the authorities as to whether an arbitrator’s jurisdiction with respect to costs is different from a judge’s discretion with respect to costs because the discretion may be tempered or enhanced by the nature of the agreement to arbitrate or by statutory provisions mandating non-consensual arbitration such as may occur under the Condominium Act. My review of the cases, however, reveals that the distinctions are of the type that are without a difference. The authorities establish that the arbitrator’s discretion must be exercised judicially and not irrationally or whimsically. It is within an arbitrator’s discretion to order substantial or full indemnity if it is justified after looking at the prior conduct of a party when making such an award.”
Here, Justice Perell found that “exercising the arbitrator’s or the court’s discretion judicially, neither the arbitration nor the court application would justify or warrant a full indemnity award or even a substantial indemnity award.” Justice Perell went on to say that “there is nothing in the conduct of either [party] that even justifies adjusting the costs scale beyond the partial indemnity scale that typically is awarded to the victor in litigation.”
Accordingly, Justice Perell awarded costs of the arbitration and court application on a partial indemnity basis, finding that was appropriate and reasonable and within the reasonable expectations of the unsuccessful party.
First, it is important to keep in mind that when seeking or awarding costs in the arbitration context there may be a number of relevant additional considerations. If institutional rules have been adopted they will often also speak to how the arbitrator’s discretion with respect to costs is to exercised. In addition, the arbitration agreement may specifically indicate how costs are to be allocated. Finally, the procedural orders and any agreements between the parties once the arbitration has been commenced may also need to be considered. All of this can be appropriately considered part of the “reasonable expectations of the unsuccessful party” as the party should not expect divergence from the applicable legal framework or any agreements it has made.
Second, for other approaches to the granting of arbitration costs see earlier Case Notes B.C. – Hells Angels’ mediation is not unlawful even if subject matter may involve alleged unlawful activity – #337, B.C. – authority to award actual reasonable legal costs a “desirable feature” not a “chilling effect” – #442, and Julie’s 2021 Top Pick: B.C. – Allard v The University of British Columbia – #567.
Third, for an earlier Case Note on the Electek case see Case Note: Ontario – Court overturns decision, “deciding the matter” of jurisdiction de novo – #586.