Administrative law – Decisions of administrative tribunals – Arbitration Board – Arbitrators – Right to award costs – Judicial review – Jurisdiction – Standard of review – Patent unreasonableness
Metro Canada Logistics Inc. v. UWG Inc.,  O.J. No. 1501, Ontario Superior Court of Justice, April 23, 2007, H.T. Spiegel J.
The parties had entered into a Logistics Services Agreement which provided that any dispute between the parties would be resolved by an Arbitrator pursuant to the Arbitration Act, S.O. 1991, c. 17. The agreement contained terms stating “There shall be no appeal from the Arbitrator’s decision(s) on question of law” and “The costs of the arbitration shall be paid by both parties equally”.
A dispute arose between the parties which was referred to an Arbitrator pursuant to the agreement. During the Winter of 2006, there was a lengthy hearing on the merits of the dispute and on August 3, 2006 the Arbitrator released a decision awarding the Respondent damages.
The parties then made submissions on costs. The Respondent sought the costs of the arbitration on a partial indemnity basis. The Applicant, relying on the costs provision in the Arbitration Agreement, took the position that each party should pay its own costs or the reasonable costs of both parties be pooled and each party pay one half of the total. The Arbitrator ultimately concluded that the costs provision did not prevent him from exercising his jurisdiction under section 54 of the Act to make an award of costs in favour of the Respondent.
The Court first considered the appropriate standard of review. The parties had, by their own agreement, removed errors of law for challenging the decision of the Arbitrator. The interpretation of a contractual term is a matter of law and therefore the Applicant could not successfully challenge the award solely on the ground that the Arbitrator’s costs interpretation was wrong in law. The Applicant would be required to satisfy the Court that the Arbitrator was clearly wrong in his costs interpretation.
The Court noted that virtually all of the arguments made in support of the Applicant’s interpretation of the costs provision were made to the Arbitrator who considered each with great care and gave detailed reasons for rejecting them. The Court agreed with the Arbitrator that the words of the costs provision were ambiguous because they were open to more than one rational interpretation.
The Court further agreed with the Arbitrator’s conclusion that the parties’ post-contractual conduct supported the interpretation of the costs provision advanced by the Respondent. Both parties had sought costs at the interlocutory proceedings. The Applicant also had sought security for costs from the Respondent. The terms of the Applicant’s formal written offer to settle had been expressed as a settlement offer within the meaning of section 54(5) of the Act. At the conclusion of the hearing both sides emphasized that the Arbitrator should leave the award open so that costs could be dealt with “in the fullness of time”. All of these factors were held to support the Respondent’s interpretation.
In the result, the Arbitrator’s costs interpretation was not clearly wrong. The Court noted that if it had been found otherwise, it would have been constrained to find that the Arbitrator’s costs interpretation constituted an error of law which by the agreement of the parties could not form the basis for an appeal notwithstanding that as a result of that interpretation the Arbitrator concluded that he had the jurisdiction to make a success-based award under section 54 of the Act. To interpret a legal error made by the Arbitrator as a jurisdictional error would be to effectively subvert the parties’ agreement that there shall be no appeals on questions of law, as well as one of the primary goals of the Act which is the lessening of judicial involvement in the arbitral process.
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