Costs in International Arbitration - The Canadian Perspective

This is the first article in Clyde & Co’s latest international arbitration series covering the topic of costs in international arbitration. In this piece, senior associate Mark Mandelker from our Toronto office provide the legal perspective from Canada.

An Arbitral Tribunal’s Power to Award Costs

In Canada, whether an arbitral tribunal can award costs in an international commercial arbitration will depend on the underlying contract, the arbitration agreement, any rules agreed to be followed by the parties to the arbitration, and the law of the local jurisdiction.  For example, while the UNCITRAL Model Law on International Commercial Arbitration makes no provision for costs, other rules do, such as the ADR Institute of Canada’s (ADRIC) Arbitration Rules:

The Tribunal may fix and make part of an award the Arbitration Costs, the parties’ reasonable legal fees and expenses (including, where appropriate, full indemnity fees), and the Institute’s fees (if the Institute is administering the arbitration)

In most Canadian provinces, the statutes incorporating the UNCITRAL Model law provide little guidance on the issue of costs.  However, British Columbia’s International Commercial Arbitration Act[1] provides that “unless otherwise agreed by the parties, the costs of an arbitration are in the discretion of the arbitral tribunal” and such costs may include “any […] expense incurred in connection with the arbitral proceedings.”[2] 

Given the importance of the arbitration agreement when determining whether costs can be awarded, careful consideration must be had towards the language used, as the power to award costs may be more narrow or expansive than expected.  For example, in Metro Canada Logistics Inc. v UWG Inc.,[3] despite an arbitration agreement stating that the costs of the arbitration were to be “borne by both parties equally”, the arbitrator awarded success-based costs.  In that case, the arbitrator found that the costs provision dealt only with the expenses of arbitration, such as the arbitrator’s fees, but not legal fees or disbursements incurred by the parties.  The court refused to interfere with that decision, noting that such a decision was not “clearly wrong” (the applicable standard of review in that case).[4]

A seemingly opposite result occurred in Practicar Systems Inc. v 696373 Alberta Ltd.,[5] where in interpreting an arbitration agreement that provided that the “expense of arbitration shall be borne equally by the disputing parties”, the court held that the reference to “expense” referred to legal expenses, including both fees and disbursements.  As a result of this decision, the parties bore their own costs of litigation. 

In every case, the matrix of the language of the underlying agreements, the procedural rules and relevant arbitration legislation must be considered.[6]

Scope of the Arbitral Tribunals’ Cost Award

The scope of the costs award may be circumscribed by the arbitration agreement, procedural rules, and/or the underlying arbitration legislation.  In this regard, certain institutional rules and arbitration legislation are quite broad and provide that costs of a party’s reasonable legal expenses include: fees of the arbitral tribunal, costs of expert advice and other assistance provided to the arbitral tribunal, travel and expenses of witnesses, and costs for legal representation.  Such language has been interpreted to mean that a successful party may be entitled to its full costs (subject to reasonableness and the tribunal’s discretion), in contrast to the normal rules of court which provide an entitlement to only partial-indemnity.[7]   Indeed, an arbitral tribunal is not necessarily bound by the traditional rules regarding the award of costs and is given a broad discretion in making such an award.[8]  Nonetheless, the exercise of awarding costs must still be done “judicially”, and not “arbitrarily, irrationally or whimsically.”[9] 

Subject to language in an agreement to the contrary, pre-arbitral steps, such as mediation, are generally not likely to fall under an arbitral tribunal’s discretion to award costs.[10]

Appealing an Arbitral Tribunal’s Cost Award

An arbitral tribunal’s award of costs may be appealed, but only in limited circumstances.  As usual, the underlying legislation, arbitration agreement, and procedural rules must be reviewed.  As a right to appeal arbitral proceedings is often limited to errors of law, given that the awarding of costs involves an exercise of discretion, such an exercise will amount to an error of law “in only very narrow circumstances.”[11]  Such circumstances include where the arbitral tribunal erred in exercising its discretion, made an error in principle, or the award was clearly wrong.[12] 

Security For Costs

Canadian arbitrators generally do not have an inherent power to require a party to an arbitration to post security for costs or, by extension, to stay proceedings pending the posting of such security.[13]  Again, one must ultimately look to the relevant legislation, arbitration agreement and/or the applicable rules of procedure to confirm whether the arbitral tribunal has such a power.  For example, the ADRIC Arbitration Rules expressly provide a tribunal with this power.[14]  Generally, Canadian arbitration legislation does not explicitly address whether security for costs may be ordered by an arbitrator; however, such power is expressly provided for in British Columbia.[15] 

The BC statute also sets out the test that the applicant must meet: 

            17.01 (1) The party requesting […] must satisfy the arbitral tribunal that

(a) harm not adequately reparable by an award of damages or other monetary award is likely to result if the measure is not ordered,

(b) the harm referred to in paragraph (a) substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted, and

(c) there is a reasonably possibility that the requesting party will succeed on the merits of the claim.

Some decisions suggest that an arbitral tribunal’s ability to award security for costs might fall under its jurisdiction to determine the procedure to be followed in an arbitration,[16] but this has not definitively been determined as the law in Canada.  It is more prudent to look for explicit language in the rules/legislation/agreement to confirm with the arbitral tribunal has this power.

This series will continue next week with the position from France.