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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.
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 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.”
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., 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).
A seemingly opposite result occurred in Practicar Systems Inc. v 696373 Alberta Ltd., 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.
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. 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. Nonetheless, the exercise of awarding costs must still be done “judicially”, and not “arbitrarily, irrationally or whimsically.”
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.
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.” Such circumstances include where the arbitral tribunal erred in exercising its discretion, made an error in principle, or the award was clearly wrong.
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. 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. 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.
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, 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.
 RSBC 1996, c 233
 s 31(8)
 2007 CanLII 13363 (ON SC)
 Ibid at para 31
 2007 ABQB 143
 See e.g. Hope Estate v Co-operators Insurance Assn., 1986 CanLII 2664 (ON SC), where the terms speaking to the issues of costs (“Each party shall pay the representatives appointed by him and shall bear equally the expense of the arbitration and the umpire”) was interpreted to mean that a party’s legal fees were not “expenses” that could be shared.
 See Electek Power Services Inc. v Greenfield Energy Centre Limited Partnership, 2022 ONSC 2437 at para 31 and Italiano v Toronto Standard Condominium Corp. No. 1507, 2008 CanLII 32322 at para 43 (ON SC)
 See CRW v SJA, 2018 ABQB 1041 at para 65
 Azurix North America Engineering Corp. v Deep River, 2006 CanLII 17927 at para 11 (ON SC)
 See e.g. Toronto Standard Condominium Corporation No. 1466 v Weinstein, 2021 ONSC 1306
 Frank v Vogel & Co LLP, 2012 ABQB 432 at para 24. See also K-Rite Construction Ltd. v Enigma Ventures Inc., 2020 ABQB 566 at paras 30-33; Best Buy Canada Ltd. v Roselawn and Main Urban Properties Inc., 2018 ONSC 92 at para 24
 Best Buy, ibid at para 24
 Ramot Gil Development Corp. v Precision Homes Corp., 1979 CanLII 1945 (ON SC). See also Frontier International Shipping Corp. v “Tavros” (The), 1999 CanLII 9389 at para 19 (FC), citing Mavani v Ralli Brothers Ltd. (1972),  1 W.L.R. 468 (Eng. QB)
 s 5.1.2
 International Commercial Arbitration Act, RSBC 1996, c 233 , s17
 See Jaffasweet Juices Ltd. v Michael J. Firestone & Associates, 1997 CarswellOnt 4384 (Gen Div) and Inforica Inc. v CGI Information Systems & Management Consultants Inc., 2009 ONCA 642, rev’g 2008 CarswellOnt 9227.