Court File and Parties

COURT FILE NO.: CV-20-00637621-0000 DATE: 2022-04-21 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: ELECTEK POWER SERVICES INC., Applicant

• and - GREENFIELD ENERGY CENTRE LIMITED PARTNERSHIP, Respondent

Counsel: Alan Mark and Christopher I.R. Morrison, for the Applicant Pam Pengelley for the Respondent

HEARD: In writing

PERELL, J.

Reasons for Decision - Costs

Table of Contents

A. Introduction . 1 B. Procedural and Evidentiary Background . 2 C. Discussion and Analysis . 3 D. Conclusion . 6

A. Introduction

[1] This is a costs decision. Electek Power Services Inc. (“Electek”) seeks full indemnity costs of $616,312.06, all inclusive. Greenfield Energy Centre Limited Partnership (“Greenfield”) submits that the appropriate award is $145,000.

[2] Electek brought an application pursuant to s. 17(8) of the Arbitration Act, 1991 with respect to a $12.0 million damage claim against it arising from the failure of a transformer at Greenfield’s electricity generating plant. The court application was a hearing de novo, and Electek sought an Order setting aside a “preliminary question” decision by a panel of Arbitrators that decided that they had jurisdiction to proceed with the arbitration. I granted the application. Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894. I held that the Arbitrators had erred in assuming jurisdiction of the dispute between Greenfield and Electek.

[3] Electek now seeks costs for: (a) the arbitration hearing; and (b) the application pursuant to s. 17(8) of the Arbitration Act. It seeks: (a) $428,774.54, all inclusive, on a full indemnity basis for the arbitration; and (b) $187,537.52, all inclusive, on a full indemnity basis for the court application.

[4] Greenfield submits that the appropriate awards should be: (a) $150,000, all inclusive, on a partial indemnity basis for the arbitration; and (b) not more than $45,000, all inclusive, for the court application on a partial indemnity basis.

[5] For the reasons that follow, I award Electek: (a) $300,000, all inclusive, for the arbitration hearing, on a partial indemnity basis; and (b) $125,000, all inclusive, for the court application, on a partial indemnity basis. The total award is $425,000, all inclusive.

B. Procedural and Evidentiary Background

[6] The damage event occurred on February 10, 2018.

[7] On February 6, 2020, Greenfield delivered a Notice of Arbitration.

[8] In February 2020, Electek delivered a Response to the Arbitration Application.

[9] On March 6, 2020, Electek commenced an Application in the Superior Court pursuant to s.48 of the Arbitration Act, 1991 for a declaration that the arbitration commenced by Greenfield was invalid.

[10] On March 16, 2020, Electek brought a motion in the Superior Court for an order for an interim stay of the arbitration until the hearing of Electek’s application pursuant to s.48 of the Arbitration Act, 1991.

[11] On June 15, 2020, while the Court was operating under emergency protocols because of the Covid-19 pandemic, Electek sought to schedule its motion for an interim stay of the arbitration. Justice Myers made the following endorsement:

Counsel concede the matter is not a short application. An urgent hearing is not one for which booking in December is sought. The court is not able to hear complex, lengthy matters yet [because of the operations protocols of the Covid-19 pandemic] absent urgency. The competence-competence principle suggests the panel should rule on its jurisdiction without prejudice to Electek’s right to raise the issue thereafter. This is especially the case where significant facts are in dispute. There is no short crisp ruling of law that could save significant trial expense either here or there. Start there. We’ll be here when you get back.

[12] The arbitration proceeded before a blue-ribbon arbitration panel, which was comprised of Earl A. Cherniak Q.C., William G. Horton, and J. Brian Casey. The Arbitrators cost $2,400 per hour.

[13] Documentary discovery got underway, and the parties hired experts to prepare damages reports.

[14] In the summer of 2020, Electek asked the arbitrators to rule whether they had jurisdiction to resolve the dispute between Greenfield and Electek.

[15] The parties delivered evidentiary statements for the hearing before the Arbitrators. The hearing proceeded as a virtual hearing with four days of examinations and cross-examinations, on February 3, 4, 5, and 8, 2021. It was a Zoom hearing recorded by the International Centre for Dispute Resolution.

[16] The Arbitrators released their decision on March 5, 2021. They concluded that they had jurisdiction to continue.

[17] Greenfield sought costs for the first arbitral award of $636,905.54, all inclusive. Of this sum, $438,890.68 was for legal fees.

[18] For its part, to resist the arbitration, Electek incurred legal fees of $231,758 plus HST of $30,128.54, plus disbursements of $166,887.98, for a total of $428,774.54, all inclusive. Of the $231,758 for legal fees, $150,910.00 was incurred with respect to the jurisdictional issue.

[19] On August 16, 2021, Electek brought an application pursuant to s. 17(8) of the Arbitration Act, 1991 for an order setting aside the Arbitrators’ decision.

[20] The evidence for the court application was a composite of evidence that was proffered before, during, and after the arbitration hearing. Thus, the evidence for Electek’s application pursuant to s. 17(8) of the Arbitration Act consisted of: (a) the evidence that the parties filed on the initial motion that was considered by Justice Myers; (b) the evidence that both parties proffered for the hearing before the Arbitrators; (c) transcripts and video recordings of the hearing before the Arbitrators; (d) the Arbitrators’ decision; (e) several affidavits filed for the purposes of the s. 17(8) application; (f) a joint documentary brief; and (g) compendia.

[21] The evidence for the application consisted of the evidence from fourteen witnesses: (a) Max Autio, (b) Lynne Ballard, (c) Charles Batrouny, (d) Hudson Chalmers, (e) Richard Dejonghe, (f) Rajesh Desai, (g) Brad Gray, (h) Marinela Kraju, (i) C. David Lamoureaux, (j) Shane Maddeford, (k) Alex Palimaka, (l) Lorne Reddy, (m) Tim Valleau, and (n) Joe Vandenboom.

[22] I heard the application on January 12, 2022 and I released my decision on February 8, 2020.

[23] In addition to the full indemnity costs for the arbitration, Electek is seeking the costs of the court application, in the amount of $161,570.00 plus HST for legal fees, and $4,963.42 for disbursements for an all-inclusive claim of $187,537.52.

C. Discussion and Analysis

[24] Courts have jurisdiction to award costs pursuant to the Courts of Justice Act and the Rules of Civil Procedure. Pursuant to s. 54 (1) of the Arbitration Act, 1991, arbitrators may award costs of an arbitration. Section 54 (2) provides that the costs of an arbitration consist of the parties’ legal expenses, the fees and expenses of the arbitral tribunal and any other expenses related to the arbitration.

[25] The court’s discretion in awarding costs arises under the authority of s. 131(1) of the Courts of Justice Act and is to be exercised by a consideration of the factors in rule 57.01(1) of the Rules of Civil Procedure. These factors include the principle of indemnification, the reasonable expectations of the parties, the complexity of the proceeding, the importance of the proceeding, and the conduct of the parties in litigation.

[26] The traditional discretionary principles developed for costs awards are codified in rule 57.01(1), which states:

Factors in Discretion

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(iii) any other matter relevant to the question of costs.

[27] The most general rule about costs, not to be departed from without good reason, is that costs at a partial indemnity scale follow the event, which is to say that normally costs are ordered to be paid by the unsuccessful party to the successful party on a partial indemnity scale. McCracken v. Canadian National Railway, 2012 ONSC 6838; Hague v. Liberty Mutual Insurance Co., [2005] O.J. No. 1660 (S.C.J.); Pike's Tent and Awning Ltd. v. Cormdale Genetics Inc. (1998), 27 C.P.C. (4th) 352 (Ont. Gen. Div.); Bell Canada v. Olympia & York Developments Ltd. (1994), 17 O.R. (3d) 135 (C.A.).

[28] A critical controlling principle for the awarding of costs is that the sum awarded reflect the fair and reasonable expectations of the unsuccessful litigant. Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 at para. 24 (C.A.); Stellarbridge Management Inc. v. Magna International (Canada) Inc., [2004] O.J. No. 2102 at para. 97 (C.A.); Zesta Engineering Ltd. v. Cloutier (2002), 21 C.C.E.L. (3d) 161 at para. 4 (Ont. C.A.); McGee v. London Life Insurance Co., [2008] O.J. No. 5312 at paras. 5-8 (S.C.J.); Caputo v. Imperial Tobacco Ltd. (2005), 74 O.R. (3d) 728 at paras. 23-25 (S.C.J.). Lee v. General Motors Co. of Canada, [2004] O.J. No. 2245 (S.C.J.).

[29] The assessment of reasonableness is discretionary and very much dependent upon the circumstances of each case. In some cases, it may be reasonable for the successful party to make exhaustive efforts and to commit enormous legal resources, and in those cases, it might be said that the unsuccessful party could reasonably expect to pay those costs. In other cases, however, the successful party may have been well served by giving his or her lawyer instructions to make exhaustive efforts, but it might be disproportionate and unreasonable to expect the unsuccessful party to pay those costs, even if he or she would have expected or anticipated that his or her foe would have marshalled those legal resources. Das v. George Weston Limited, 2017 ONSC 5583 at para. 65, var’d 2018 ONCA 1053.

[30] In Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.) at para. 52, Justice Epstein stated that the overriding principle in awarding costs is reasonableness. She stated:

52. As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant. In Boucher [Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.)], this court emphasized the importance of fixing costs in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding at para. 37, where Armstrong J.A. said: "[t]he failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice."

[31] There is some vagueness in the authorities as to whether an arbitrator’s jurisdiction with respect to costs is different from a judge’s discretion with respect to costs because the discretion may be tempered or enhanced by the nature of the agreement to arbitrate or by statutory provisions mandating non-consensual arbitration such as may occur under the Condominium Act. My review of the cases, however, reveals that the distinctions are of the type that are without a difference. The authorities establish that the arbitrator’s discretion must be exercised judicially and not irrationally or whimsically. Italiano v. Toronto Standard Condominium Corp. No. 1507, [2008] O.J. No. 2642 at para. 41 (S.C.J.); Azurix North America Engineering Corp. v. Deep River, [2006] O.J. No. 2143 (S.C.J). It is within an arbitrator's discretion to order substantial or full indemnity if it is justified after looking at the prior conduct of a party when making such an award. Rosenfeld v. Iamgold International African Mining Gold Corp., [1997] O.J. No. 3770 (Gen. Div.).

[32] In my opinion, in the immediate case, exercising the arbitrator’s or the court’s discretion judicially, neither the arbitration nor the court application would justify or warrant a full indemnity award or even a substantial indemnity award. There is nothing in the conduct of the parties that calls out for a punitive award. It was as reasonable and appropriate for Greenfield to submit the parties’ dispute to arbitration as it was reasonable and appropriate for Electek to challenge the arbitrator’s jurisdiction. The adversaries in this $12 million litigation did not depart from the rules of engagement and there is nothing in the conduct of either that even justifies adjusting the costs scale beyond the partial indemnity scale that typically is awarded to the victor in litigation.

[33] There is quibbling about such matters as the numbers of junior and senior lawyers involved and hourly rates and blended hourly rates, but the litigation risks were considerable and as it may be gathered both from the arbitrators’ decision and my own, the case was of a high complexity and involved facts that had occurred at the conception of the relationship between the parties and long before the transformer failed.

[34] Based on the costs submissions, I would estimate that the parties respectively committed approximately 1,000 hours of lawyers’ time on the arbitration and on the court application with Greenfield’s blended rate being around $600/hour and Electek’s being around $270/hr.

[35] Applying the normal factors that guide a court’s discretion, in the immediate case, a partial indemnity award of $425,000 is in my opinion appropriate and reasonable and within the reasonable expectations of Greenfield.

D. Conclusion

[36] Therefore, for the above reasons, I award Electek: (a) $300,000, all inclusive, for the arbitration hearing, on a partial indemnity basis; and (b) $125,000, all inclusive, for the court application, on a partial indemnity basis. The total award is $425,000, all inclusive.

Perell, J. Released: April 21, 2022