Ontario – costs of arbitration not recoverable as damages in litigation over breach of settlement arrived at during arbitration – #247

In Arista Homes (Kleinburg) Inc. v. Sarah Igbinedion, 2019 ONSC 7086, Madam Justice Margaret Eberhard held that the costs of an earlier arbitration could not be recovered in subsequent litigation involving breach of a settlement negotiated during that arbitration. Eberhard J. held that such costs had been spoken to by the parties in their settlement and were also not within the discretion of the court to award as costs of the court proceeding alleging breach of the settlement.

Plaintiff as vendor and Defendant as buyer disputed a real estate transaction.  Plaintiff and Defendant had been parties to an initial purchase and sale agreement which failed to close, prompting them to undertake arbitration.  During that arbitration and after mediation, Plaintiff and Defendant entered into a second agreement (“Minutes of Settlement”) by which they agreed to the same purchase and sale terms but with a higher price and new closing date.

That second transaction also did not close. Eberhard J.’s reasons set out why Defendant sought an extension to closing the transaction and why Plaintiff refused that extension.  Litigation ensued before the court with Plaintiff seeking summary judgment for damages arising from the transaction not closing.  

Eberhard J.’s reasons address arguments particular to the parties’ dispute, including (i) whether Defendant presented a valid argument on Plaintiff’s mitigation of damages (Defendant did not) and (ii) whether the requirements for summary judgment were met (they were).  For an interesting analysis of mitigation, see paras 10-15 and Azzarello v. Shawqi, 2019 ONCA 820, paras 37-40.

Though Plaintiff and Defendant did not dispute the nature of the damages Plaintiff claimed, they did dispute the amount.  Eberhard J. held that, despite their disagreement as to the amount of damages, their disagreement did not require a trial.  She did grant summary judgment but awarded less than the full amount claimed by Plaintiff, granting $160,553.73 in damages with pre-judgment interest calculated at 12%.

Plaintiff’s and Defendant’s disagreement regarding the amount of damages had different components, the first of which involved Plaintiff’s demand to recover its costs of the earlier arbitration.  Eberhard J. disallowed this claim, holding that the arbitration costs were not recoverable as damages for two (2) reasons:

first, Plaintiff and Defendant had agreed in the Minutes of Settlement to bear their own costs; and,

second, she determined that the arbitration and mediation proceeding was a separate proceeding from the court litigation. 

In her second determination, Eberhard J. relied on Dia v. Gore Mutual Insurance Co., 1993 CanLII 8511 (ON SC), [1993] O.J. No. 644 which she characterized as holding that “such costs” are not recoverable in the court action and “no contrary authority is placed before me”.

urbital note –Dia v. Gore Mutual Insurance Co. denied recovery of mediation costs on reasons specific to the legislation under which those costs had been incurred. In that case, the parties were subject to the dispute resolution process set out in Ontario’s Insurance Act, RSO 1990, c I.8, namely section 282 and following.  Dia v. Gore Mutual Insurance Co. held that:

(i) nothing in the Insurance Act empowered the court “specifically to include costs of the arbitration proceedings in a subsequent application by one of the parties”; and,

(ii) the provisions in Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194, such as Rule 58.05(1) and 57.01(3), when read together with section 131 of the Courts of Justice Act, RSO 1990, c C.43, provided the court discretion to award costs but only of the proceeding (action or application) or incidental to it or of a step in it.  There was no authority to award costs outside of a proceeding.

The reasoning in (ii) was preceded by and arguably influenced by the reasoning in (i).  Had there been no (i), perhaps (ii) would have been different.  Also, the claim in (ii) concerns costs of court but costs of court do not eliminate expenses incurred prior to court and for which a litigant claims recovery as damages for breach of an agreement.

The reasoning Dia v. Gore Mutual Insurance Co. involved legislation which served as the source of the arbitration costs and which omitted mention of cost recovery.  The reasons do not entirely address whether costs per se could be not recovered in court following breach of an agreement issuing from an ad hoc or institutional arbitration and where the settlement agreement itself did not speak to or expressly eliminate that recovery. 

The Minutes of Settlement in Arista Homes (Kleinburg) Inc. v. Sarah Igbinedion appear to eliminate recovery when Eberhard J. notes that the parties agreed to bear their own costs.  Absent such terms in an agreement and absent legislation which imposed the arbitration but denied recovery of the costs incurred in arbitration, arbitral parties might still consider cost recovery as a component of damages stemming from breach of a settlement agreement negotiated during arbitration.