Background
Green Light Solutions Corp. hired Kern BSG Management Ltd. to construct a cannabis-growing facility. After Green Light alleged deficiencies and withheld payment, Kern commenced arbitration for unpaid invoices. The arbitrator found deficiencies in Kern’s work and held that Green Light could withhold payment, but not indefinitely. He left valuation of the deficiencies to the project consultant and directed that any outstanding amount would bear contractual interest from January 15, 2023.
Although both parties had requested costs on the assumption that each would prevail, neither had addressed how costs should be apportioned if the result were mixed. Without seeking further submissions, the arbitrator found that neither party was substantially successful and awarded Kern 60% of its costs from Green Light while awarding Green Light 40% of its costs from Kern. A later decision reduced Kern’s claimed costs, but did not reopen entitlement or apportionment. Green Light obtained leave to appeal only on the question whether the process for deciding costs breached procedural fairness.
The Court’s Holding
The Court of Appeal allowed the appeal. In the circumstances, procedural fairness required the arbitrator to give the parties an opportunity to address substantial success and costs entitlement after the substantive findings were known. The agreed procedural order contemplated separately scheduled costs submissions; the parties’ earlier submissions assumed outright success; the result was mixed; the sums at stake were substantial; and Green Light had identified non-frivolous arguments, including a possible settlement offer, that it could have advanced.
The Court vacated both the finding that neither party was substantially successful and the 60/40 costs apportionment, remitting those issues to the same arbitrator for fresh consideration after receiving submissions. It rejected Green Light’s request that a different arbitrator decide the matter and dismissed its fresh-evidence application concerning its challenge to the arbitrator’s fees. Any request for recusal based on a reasonable apprehension of bias must first be made to, and decided by, the arbitrator.
Key Takeaways
- An arbitrator may breach procedural fairness by imposing a mixed-result costs allocation without inviting responsive submissions when the parties’ earlier costs positions assumed outright success.
- The required procedure depends on the arbitration agreement, procedural orders, issues decided, potential relevance of settlement offers, and financial significance of the costs award.
- A procedural-fairness error does not by itself disqualify the arbitrator; a recusal request based on alleged bias ordinarily must first be presented to that arbitrator.
Why It Matters
The decision confirms that arbitral efficiency and finality do not eliminate the statutory obligation to give each party a reasonable opportunity to address the basis on which a consequential costs ruling will be made. When an award produces an unanticipated mixed result, arbitrators may need to defer costs entitlement until the parties can make informed submissions.
For arbitration counsel, the ruling also highlights the value of expressly addressing alternative costs outcomes and agreeing in advance on when settlement offers and costs-entitlement submissions may be presented.