ONTARIO – Arbitration – Costs – Subsection 15(c) of the Tarion Addendum to an agreement of purchase and sale (APS) changes the costs regime imposed by s. 131 of the Courts of Justice Act and the Rules of Civil Procedure (“RCP”). The general rule of costs following the event under the RCP does not govern and purchasers are presumed entitled to their costs regardless of the outcome of the arbitration. The arbitrator may only deviate from the presumption that the vendor pays the arbitrator’s fees and disbursements and the reasonable fees and disbursements of the purchaser for just cause.

ONTARIO – Arbitration – Judicial Review – Given that the Ontario New Home Warranty Program Act imposes mandatory arbitration, the Divisional Court has jurisdiction to hear an application for judicial review of the arbitrator’s award.

Shah v. 625 Sheppard Bayview Village GP Inc.
 2025 ONSC 1779 (March 25, 2025)
Ontario Divisional Court (Matheson, Trimble, Nakatsuru JJ.)

The Applicant brought an application for judicial review, seeking an order of certiorari to quash the arbitrator’s costs award against it. (para. 1) The Applicant sought an order that the Respondent pay his legal fees and disbursements under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O. 31 (“ONHWPA”) and the arbitration agreement, including the statutorily required Tarion Addendum to the parties’ agreement of purchase and sale (“APS”). (para. 2)

Background

The parties entered into the APS on April 23, 2016, to purchase a condominium unit in a building to be built in Toronto. The Respondent cancelled the project on July 10, 2019, in reliance on an early termination clause in the Tarion Addendum, which provided that the APS was conditional upon the Respondent receiving confirmation that financing for the project was available. The Respondent was required to take all “commercially reasonable steps” within its power to satisfy the early termination conditions. (para. 4)

The ONHWPA states the following with respect to disputes: “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.” (para. 5)

The Tarion Addendum to the APS included s.15(a) as follows: “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.” (para. 6)

The costs regime under s. 15(1) of the Tarion Addendum to the APS was significantly different from costs under the Ontario Rules of Civil Procedure. S. 15(1) provided that: “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.” (para. 7)

The Applicant commenced the arbitration and sought an order for specific performance and/or an order for damages allegedly sustained by the Respondent cancelling the project. The parties agreed on an arbitrator and executed an Agreement to Arbitration and Terms of Appointment (“Arbitration Agreement”) that provided that the Award was “final, binding and subject only to the appeal rights under the Arbitration Act, 1991.” The Arbitration Agreement did not deal with appeals. (paras. 8-10)

The arbitrator dismissed the arbitration entirely. The arbitrator also noted that the Applicant had caused significant delays by failing to comply with procedural directions and refusing to answer or refuse undertakings. The Applicant did not appeal the decision. (para. 11)

The arbitrator decided that the Respondent should pay the arbitrator’s fees and disbursements, but he denied the request that the Respondent pay the Applicant’s reasonable legal expenses. Instead, the arbitrator applied the costs principles from the Rules of Civil Procedure, ordering the Applicant to pay the Respondent’s costs on a substantial indemnity basis. (para. 15)

Judicial Review

Issue 1 – Does the Court have Jurisdiction?

The Respondent argued that the court did not have jurisdiction over this private dispute. However, the Divisional Court held that “given the ONHWPA, which imposes mandatory arbitration, we conclude that this Court has jurisdiction to hear this Application for Judicial Review (see: Port Arthur Shipbuilding Co. v. Arthurs, 1968 CanLII 29 (SCC), [1969] S.C.R. 85, at pg. 90 to 91; Setia v. Appleby College, 2013 ONCA 753 at paras. 20 and 23; Donald J. M. Brown and John M. Evans, Judicial Review of Administrative Action in Canada (Toronto: Canvasback Publishing, 1998) (loose-leaf updated 2024) ch 1 at 1:14).” (para. 17)

Issue 2 – Was the Arbitrator’s Decision Reasonable?

The court found that the arbitrator’s costs decisions regarding who pays the arbitrator’s fees and who pays the legal fees of which party (and the amount) conflicted. The court took no issue with the arbitrator’s decision that the respondent was required to pay the arbitrator’s fees and disbursements, holding that “[t]he decision is reasonable and there is a clear, logical path of reasoning explaining the result.” The court found, however, that the arbitrator’s decision that the applicant pay the respondent’s legal fees and disbursements on a substantial indemnity basis was not reasonable. (paras 18-19)

The court held that subsection 15(c) of the Tarion Addendum to an agreement of purchase and sale changes the costs regime imposed by s. 131 of the Courts of Justice Act and the Rules of Civil Procedure (“RCP”). The general rule of costs following the event under the RCP does not govern. Instead, purchasers are presumed to be entitled to their costs regardless of the outcome of the arbitration. Section 15(c) provides that the arbitrator may only deviate from the presumption that the vendor pays the arbitrator’s fees and disbursements and the reasonable fees and disbursements of the purchaser for “just cause”. The court noted that “T[t]he 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.” (para. 21)

The court found that despite acknowledging that the ONHWPA was a remedial statute, which was designed to offset the significant power imbalance between the vendor and the purchaser in real estate transactions, the arbitrator’s explanation for awarding substantial indemnity costs to the vendor/respondent relied 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.” (paras. 22-23)

The court held that the arbitrator’s costs decision was “internally inconsistent” and failed to follow a “coherent chain of analysis”. The court found that it could not trace the arbitrator’s reasoning without encountering “fatal flaws”. These errors resulted in the court finding that the arbitrator’s decision that the applicant pay costs was unreasonable. (para. 24)

The application was granted. The court remitted the determination of the Applicants’ claims for costs and reasonable legal expenses back to the arbitrator for reconsideration following the principles set out in its Reasons for Decision. (para. 26)