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Real Property - Ontario New Home Warranty Plan Act (ONHWPA) (2)

. Shah v. 625 Sheppard Bayview Village GP Inc. [arbitration]

In Shah v. 625 Sheppard Bayview Village GP Inc. (Ont Divisional Ct, 2025) the Divisional Court granted a JR which sought "an order of certiorari quashing the costs award", here of an ONHWPA arbitrator.

The court distinguished 'arbitrator costs' and legal fees (which are addressed in "s.15(c) of the Tarion Form addended as part of the APS"):

[2] The Applicant seeks an order that it recover from the Respondent his legal fees and disbursements under the specific regime that applies under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the “ONHWPA”) and his arbitration agreement, including s. 15(c) of the Tarion Addendum to the parties’ Agreement and Purchase and Sale (the “APS”). The Tarion Addendum is statutorily required, as set out in s. 8(1)1 of O. Reg. 165/08 under the ONHWPA.

[3] There is no issue that the ONHWPA is consumer protection legislation aimed at protecting purchasers of new homes in Ontario: Tarion Warranty Corporation v. Kozy, 2011 ONCA 795, at para. 2.

....

[5] With respect to disputes that may arise, s. 17(4) of the ONHWPA states as follows:

Every purchase agreement and construction contract between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitration Act, 1991 applies.

[6] In accordance with the above, the Tarion Addendum to the APS included subsection 15(a), which provided that:

The Vendor and Purchaser agree that disputes arising between them relating to termination of the Purchase Agreement under section 11 shall be submitted to arbitration in accordance with the Arbitration Act, 1991 (Ontario) and subsection 17(4) of the ONHWP Act.

[7] Section 15(c) of the Tarion Addendum to the APS provided for a costs regime that is markedly different from the Rules of Civil Procedure:

The Vendor shall pay the costs of the arbitration proceedings and the Purchaser’s reasonable legal expenses in connection with the proceedings unless the arbitrator for just cause orders otherwise.

[8] The Applicant commenced an arbitration seeking an order for specific performance and/or an order for damages he alleged to have sustained due to the Respondent’s cancellation of the project.

[9] The parties agreed to appoint Arbitrator Huberman and executed an Agreement to Arbitrate and Terms of the Appointment (the “Arbitration Agreement”). The Arbitration Agreement provided that: “the Award is final, binding, and subject only to the appeal rights under the Arbitration Act, 1991”.

[10] The Arbitration Agreement did not deal with appeals. As a result, there could be an appeal on questions of law, with leave, is provided for under s. 46(1) of the Arbitration Act, 1991.

....

[13] The Applicant/Purchaser argued that the Respondent/Vendor should pay the Arbitrator’s fees and disbursements, and pay his legal fees, both pursuant to s. 15(c) of the Tarion Form addended as part of the APS. As noted above, s. 15(c) requires an order in favour of the Purchaser unless the arbitrator, for just cause, orders otherwise.

[14] The Respondent argued that the Applicant should pay both the Arbitrator’s fees and disbursements and pay the Respondent’s legal fees on a substantial indemnity basis.

[15] The Arbitrator released his decision on March 18, 2024. In it, he held that the Vendor/Respondent should pay the Arbitrator’s fees and disbursements, finding no just case to order otherwise. However, he denied the request that the Vendor pay the Purchaser’s reasonable legal expenses. He applied costs principles from the Rules of Civil Procedure and ordered that the Applicant pay the Respondent’s costs on a substantial indemnity basis.

....

Issue 2 - Was the Arbitrator’s Decision Reasonable?

[18] The Arbitrator’s costs decision decided two things – who paid the Arbitrator’s fees, and who paid the legal fees of which party and in what amount. His decisions conflict.

[19] This Court has no issue with the Arbitrator’s decision that the Respondent was required to pay the Arbitrator’s fees and disbursement. The decision is reasonable and there is a clear, logical path of reasoning explaining the result. However, the Arbitrator’s decision that the Applicant had to pay the Respondent’s legal fees and disbursements on a substantial indemnity basis is not reasonable. We say this for these reasons.

[20] First, the starting point is s. 15(c) of the Tarion Addendum to the APS, which imposed the following costs rule on the Arbitration:

The Vendor shall pay the costs of the arbitration proceedings and the Purchaser’s reasonable legal expenses in connection with the proceedings unless the arbitrator for just cause orders otherwise. [Emphasis added.]

[21] Subsection 15(c) changes the costs regime from the costs rules imposed by s. 131 of the Courts of Justice Act, and the Rules of Civil Procedure. That regime does not govern the question of who reimburses whom for fees and disbursements. The general rule of costs following the event under the Rules of Civil Proceedings does not govern. Instead, purchasers are presumed entitled to their costs regardless of the outcome of the Arbitration. Subsection 15(c) provides that the Arbitrator may only deviate from the presumption that Vendors pay the Arbitrator’s fees and disbursements and the reasonable fees and disbursements of the Purchaser “for just cause”. The phrase “for just cause” is not defined and the Arbitrator does not define it. It is notable that the words “in accordance with standard costs principles” or something similar were not used.

[22] The Arbitrator acknowledged that the ONHWPA is a remedial statute designed to offset the significant power imbalance between the Vendor and the Purchaser in disputes arising from a real estate transaction (see: paras. 39 - 40 of his interlocutory costs award quoted at p. 6 of the Costs Endorsement, and para. 68 to 70 of the latter).

[23] Notwithstanding this acknowledgement, in his explanation for awarding substantial costs to the Vendor/Respondent, the Arbitrator relies on traditional civil litigation costs rules and principles. The Arbitrator does not rationally connect those principles to the purpose of the ONHWPA or the markedly different costs regime that does apply.

[24] Further, the Arbitrator’s costs decision is internally inconsistent. It does not follow a coherent chain of analysis. Based on the same factual matrix and mandated costs regime, he finds that there is no just cause to depart from the presumption that the Vendor shall pay for the Arbitrator’s fees and disbursement, as set out in s. 15(c), but that there was just cause to depart from the presumption that the Vendor shall pay the Purchaser’s reasonable fees and disbursements. We cannot trace the Arbitrator’s reasoning without encountering the fatal flaws as discussed above.

[25] The above errors render the decision to require that the Applicant pay costs unreasonable: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at paras. 85, 103.