Awarding Costs in Arbitration
By Neil Wittmann, K.C.
In domestic arbitrations in Canada, statutes or an arbitration agreement may confer jurisdiction on a tribunal to award costs in favour of a party. Where an arbitration agreement states that the tribunal may award costs without more, the domestic legislation in the provinces differs regarding the general manner in which costs are to be awarded.
In domestic arbitrations in Canada, statutes or an arbitration agreement may confer jurisdiction on a tribunal to award costs in favour of a party. Where an arbitration agreement states that the tribunal may award costs, without more, the domestic legislation in the provinces differs regarding the general manner in which costs are to be awarded.
Canadian Domestic Arbitration Statutes Deal With Costs in Different Ways
Alberta’s Arbitration Act, section 53 confers jurisdiction on an arbitral tribunal to award costs. It states:
53(1) An arbitral tribunal may award the costs of an arbitration.
(2) The arbitral tribunal may award all or part of the costs of an arbitration on a solicitor-and-client basis, a party-and-party basis or any other basis, but if it does not specify the basis, the costs shall be determined on a party-and-party basis.
(3) The costs of an arbitration consist of the parties’ legal expenses, the fees and expenses of the arbitral tribunal and any other expenses related to the arbitration.
By referencing terms from the litigation context such as “solicitor-and-client” and “party-and-party” basis, this statutory provision is not particularly helpful in the arbitral context.
Similar provisions are found in the domestic acts of Manitoba,[1] New Brunswick,[2] and Nova Scotia.[3] These provisions may be contrasted with those contained in other jurisdictions, most notably British Columbia, where it is stated in the Arbitration Act[4]:
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.
Similarly expansive provisions are found in the Ontario[5] and Saskatchewan[6] legislation. The Ontario and Saskatchewan provisions state: “The costs of an arbitration consist of the parties’ legal expenses, the fees and expenses of the arbitral tribunal and any other expenses relating to the arbitration.”[7]
When a tribunal is faced with the parties’ agreement that costs may be awarded, without more, it is important, if not vital, for the tribunal to have regard to the applicable arbitration statute to identify the manner in which arbitral costs have been addressed in the statute. If a domestic statute applies, it can govern the spectrum of costs awards that a tribunal can make. An unsuccessful party in Alberta, Manitoba, New Brunswick or Nova Scotia may assert that party-and-party costs should be awarded, not solicitor-client costs.
Recent Authorities on the General Basis for Costs Awards
In Allard v University of British Columbia,[8] Justice Douglas considered the arbitrator’s costs award of reasonable fees and disbursements in an application for leave to appeal. Justice Douglas began her analysis by setting out the applicable provisions of the Arbitration Act.[9] Justice Douglas also stated that part of the “legal framework” governing arbitration costs awards was the British Columbia International Commercial Arbitration Centre Rule 41. These provisions indicate that an arbitrator may specify that the costs include the actual reasonable legal fees and disbursements and expenses of the party.
Allard involved a sole issue which was decided in favour of UBC. After considering a number of authorities from British Columbia, Justice Douglas stated at paragraph 78:
While costs fall within an Arbitrator’s discretion, 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…” This conclusion is consistent with the express wording of BCICAC Rule 41(2), which states that “the normal or typical costs award in arbitration includes reasonable legal or other expenses” and Rule 41(4), which states that costs include the legal and other expenses reasonably incurred in relation to the arbitration.”
In addition, Justice Douglas in Allard referred to statements made by the Attorney General for British Columbia when he presented his introduction of The Attorney General Statutes Amendment Act (No. 2), 1990 (Bill 76)[10]:
An amendment to the Commercial Arbitration Act will clarify an arbitrator’s authority to award costs for the actual reasonable legal fees, disbursements, arbitrator’s fees, expert witness fees, and expenses of the arbitration hearing. This is an interesting amendment. It will preserve a desirable feature of arbitration: namely the ability of a party to recover its actual costs. The amendment will help to ensure that the Commercial Arbitration Act remains an attractive option for business people [emphasis added].
Allard has been characterized as standing for the proposition that the “default” position in a domestic arbitration in British Columbia is full reimbursement of legal fees and expenses to the successful party, absent other relevant criteria.
The concept derived from Allard has been cited in other jurisdictions – including in Alberta, where the statute is worded differently– for the proposition that the “normal rule” for costs in arbitration is that a successful party is entitled to recover its actual reasonable fees and disbursements. An example is a statement in K-Rite Construction Ltd and 1856050 Alberta Ltd v Enigma Ventures Inc.[11] Justice Shelley stated at paragraph 38:
Further, case law cited by the Respondent suggests that full indemnity is the norm regarding commercial arbitration, and that this is consistent with the proposition that the Parties intended the Arbitrator to have discretion to award solicitor and client costs.
In Schickedanz v Wagema Holdings Limited,[12] Justice Vermette of the Ontario Superior Court of Justice considered whether full indemnity costs were properly awarded by an arbitrator. The Court stated at paragraph 9:
In this case, there is no reason not to award the full legal expenses … and the expenses of the Arbitral Tribunal. This is consistent with the normal practice in Commercial Arbitrations, absent language agreed by the Parties otherwise, to award full indemnity against the costs incurred.
The Court continued stating at paragraph 47:
….. there is support in the case law in other provinces that “full indemnity is the norm regarding commercial arbitration”: see, e.g., K-Rite Construction Ltd v Enigma Ventures Inc, 2020 ABQB 566 at para 38 and Allard v University of British Columbia, 2021 BCSC 60 at para 78.
Conclusion
Given the statutory regime in jurisdictions such as Alberta, Manitoba, New Brunswick, and Nova Scotia, the general basis for an award of costs may be vigorously contested unless agreed to in advance by the parties. However, absent an agreement to the contrary, the general basis for an award of costs in domestic arbitrations is trending toward a norm of reasonable full indemnity costs.
While the applicable legislation and rules will set the parameters for the tribunal’s decision on the basis for the award of costs, parties should be encouraged to agree on the general basis for costs in their arbitration agreement to avoid extensive disputes on this issue. If parties agree on the general basis for costs in advance, the costs issue may be more easily dealt with when the tribunal is rendering its award on the merits, rather than having a subsequent hearing and submissions on the issue of costs.
[1] CCSM c A120, the Arbitration Act.
[2] RSNB 2014, c100 Arbitration Act.
[3] SNS 1999, c5 Commercial Arbitration Act.
[4] SBC 2020, c2 as follows.
[5] SO 1991, c15 Arbitration Act, 1991.
[6] SS 1992, a-24.1 The Arbitration Act, 1992, section 53.
[7] Ibid., SO 1991, c17 s.54(2); Ibid., SS 1992, section 53.
[8] 2021 BCSC 60.
[9] RSBC 1996, c 55, s. 11.
[10] Allard at para 80.
[11] 2020 ABQB 566.
[12] 2023 ONSC 7219.
Neil Wittmann, K.C. is a former Chief Justice of the Court of King’s Bench of Alberta. He has practiced mediation and arbitration in Calgary since 2018.
