The consequences of ignoring costs submissions in arbitration

By Alexander Gay February 6, 20186 February 2018

The consequences of ignoring costs submissions in arbitration

 

How are costs to be handled by an arbitral tribunal?  Legislation in Ontario, as well as in most other Canadian jurisdictions, offers little guidance. After a number of attempts, the international arbitration community has also tried and failed to articulate clear guidelines for arbitrators. 

That’s in part because arbitral tribunals will typically defer to domestic law in making their assessments.  But different jurisdictions have different approaches to awarding costs.  And in Canada, we have few decided cases on the issue. 

There is, however, a new case out of the United Kingdom that speaks to the risks associated with failing to adequately deal with costs in arbitration. It could have some application here in Canada.

Both the Ontario Arbitration Act and the Ontario International Commercial Arbitration Act contain provisions that allow a party to challenge an award for serious irregularity.  Under the Ontario Arbitration Act, the court may set aside an award if a party was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case.  The same principle is reflected in the Ontario International Commercial Arbitration Act, which holds that the court may set an arbitral award aside if a party was unable to present its case. The same provisions are also seen in some form or another in all other Canadian jurisdictions. 

Arbitration laws in Canada are modelled after the UNCITRAL Model Law on International Commercial Arbitration.   Failure to allow a party to make submissions on costs is a serious irregularity and may result in part of the award being set aside.  In the recent case of Oldham v. QBE Insurance (Europe) Ltd, the English Commercial Court recently concluded that an arbitrator’s decisions on costs could be challenged on these grounds under section 68 of the English Arbitration Act, mirrored in subsection 46(1)(6) of the Ontario Arbitration Act and Article 34(2(a)(i) of the Ontario International Commercial Arbitration Act.   To challenge an award under either Ontario provision, a party must show that a serious irregularity has caused a substantial injustice.  The threshold is high. The Oldham case confirms that the arbitrator’s failure to give a party an opportunity to make costs submissions results in substantial injustice. This satisfied the test for setting aside part of the award.

The consequence of failing to allow parties to make costs submissions extend beyond Canadian borders.  The New York Convention, to which Canada is a signatory, allows a national court to refuse recognition of an award of another jurisdiction where the party against whom it is invoked has denied an opportunity to present its case.   That refusal likely only targets the part of the award that is offside. Having said that, there is a risk that the entire award may be exposed to non-enforcement if that part of the award is not severable.   The foreign court then has an excuse to refuse recognition and enforcement of an award that may otherwise be enforceable. 

The duty to act fairly and impartially is deeply engrained in Ontario law and may not be ignored as it relates to any aspect of the proceeding. The consequences of failing to allow a party to make costs submissions may have dire consequences, not just for the party seeking recovery, but also as it relates to the enforcement of the award abroad.

Alexander Gay is General Counsel at the Department of Justice. He maintains a broad civil litigation practice, with an emphasis on commercial and trade disputes. He is also a part-time professor at the University of Ottawa (Faculty of Law) and the author of the Annotated Arbitration Act of Ontario, 1991. The author's views are his own.

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