A month of Canadian arbitration case law rarely produces a single theme, but these four decisions have something important in common. In each case, the outcome depended largely on the standard that applied to the complaint. Two challenges succeeded and two failed, with the applicable standard of review or proof playing a central role in each result.
The four decisions below concern domestic arbitration under provincial arbitration acts, which differ by province. Separate legislation governs international arbitration seated in Canada, as noted in the FAQ below.
Who pays the costs of an arbitration?
Green Light Solutions v. Kern BSG, 2026 BCCA 335
In a Canadian arbitration, each side normally funds its own legal costs while the proceeding is underway, and the tribunal ultimately decides how to allocate those costs. Costs commonly follow the event, meaning that the successful party recovers costs from the unsuccessful one, but an arbitrator is not bound to follow that approach.
In Green Light, the arbitrator found that neither side had been substantially successful and made a divided costs allocation on that basis. The problem was procedural: in these circumstances, he should have put that conclusion to the parties and heard their submissions on entitlement before deciding costs in the award.
What happened
The dispute arose from a British Columbia construction arbitration involving a cannabis facility and roughly $1.63 million in disputed invoices. Both parties filed cost submissions before the hearing, assuming they would win outright.
The arbitrator reached a different conclusion. He found that neither party had been substantially successful. Without asking for further submissions, he ordered each party to recover part of its costs from the other: Kern 60 percent of its costs from GLS, and GLS 40 percent of its costs from Kern. These were two separate entitlements running in opposite directions, rather than a division of a single costs amount.
The costs order therefore reflected a view of the parties’ relative success that neither set of submissions addressed. The court also noted that the costs were substantial relative to the amount of the claim.
Why the costs finding did not survive
Arbitrators owe the parties a duty of procedural fairness. Section 21 of the BC Arbitration Act requires each party to be treated fairly and given a reasonable opportunity to present its case. Procedural fairness in arbitration forms part of natural justice, although what it requires in a particular case depends on the circumstances and on the rules the parties have chosen. Whether that duty was met is a question of law reviewed for correctness.
The Court of Appeal held that the duty had not been met. Once the arbitrator had decided the merits, he should have allowed the parties to make submissions on entitlement to costs. Nothing prevented him from deciding the merits first and then dealing with the allocation of costs.
The court was careful not to turn this into a general rule that an arbitrator must always invite further submissions before deciding an issue. In this case, however, several circumstances mattered: the procedural order contemplated separate costs scheduling; both parties had addressed costs on the assumption that they would win outright; the costs were substantial relative to the claim; and GLS identified submissions it would have made that could not be dismissed as frivolous.
Both findings were vacated and remitted to the same arbitrator: not only the allocation of costs, but also the underlying finding on substantial success on which that allocation was based.
When an arbitrator should return to the parties
The practical issue is one of timing. If an arbitrator is considering a costs order that does not simply follow the outcome, the parties’ existing costs submissions may have been prepared on assumptions that no longer hold. Green Light suggests that, in appropriate circumstances, the tribunal should return to the parties before deciding costs in the award.
The record illustrates why. Entitlement to costs was decided without the arbitrator knowing what either side had actually spent or that a settlement offer was said to exist.
For counsel, keep this in mind when costs submissions are made before the outcome is known. Those submissions necessarily reflect the result the party expects. If the tribunal ultimately takes a materially different view of the parties’ relative success, the basis on which the costs submissions were prepared may change.
What the court left unresolved
One question remained unresolved. Section 59(6) of the BC Arbitration Act allows the Court of Appeal to remit an award to “the arbitrator” with the court’s opinion on the question of law. The court did not decide whether the singular use permits remittal to a different arbitrator. It observed that the wording may be unambiguous, but neither party had argued the point.
The court also indicated where an argument for recusal belongs: before the arbitrator, rather than the appeal court. A party that objects to the matter returning to the same arbitrator must therefore raise that issue within the arbitration.
Can a court stay an action against a party that never signed the arbitration agreement?
Davison v. Novem Pharmaceuticals, 2026 BCSC 1593
It can. In Davison, a purchaser of shares that had never signed the arbitration agreement was arguably a constructive party to the shareholder agreement containing it. That was sufficient to stay the entire court action. The arbitrator was left to decide whether the purchaser was, in fact, a proper party to the arbitration.
What happened
Parties claiming to be creditors brought court claims after a company in the group transferred land to the group’s landlord while the companies were allegedly insolvent. An arbitration was already underway between most of the same parties.
The unanimous shareholder agreement referred all disputes arising out of or in connection with it to a single arbitrator. The landlord had not signed the agreement, but had purchased shares in the parent company and asserted that it was itself a party to the shareholder agreement. The defendants asked the court to stay the entire action under section 7 of the BC Arbitration Act.
How the two-stage stay test works
The framework comes from the Supreme Court of Canada’s decision in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41.
At stage one, the applicant must establish the technical prerequisites: that the proceedings were started in respect of a matter the parties agreed to arbitrate, that the stay application was brought before any response on the substance, and that the arbitration agreement is not void, inoperative or incapable of being performed. At this stage, the applicant needs only an arguable case, a lower threshold than the usual civil standard.
At stage two, the burden shifts to the party resisting the stay, which must establish a statutory exception on a balance of probabilities. The exceptions are interpreted narrowly, and the burden is heavy. Where invalidity is merely arguable, the question goes to the arbitrator.
All three prerequisites were arguably satisfied in Davison. This included the proposition that a purchaser of shares is a constructive party to a unanimous shareholder agreement under section 146(3) of the Canada Business Corporations Act. The court accepted that proposition as arguable without finally deciding it. The plaintiffs failed to displace the prerequisites, and the court stayed the entire action.
Two points are particularly relevant beyond the facts of the case. First, the strength of the underlying claim does not matter at this stage: a claim that the defendant is bound to lose is just as capable of being arbitrated as one it is bound to win. Second, legislative language overriding the right to arbitrate can defeat a stay. Neither the collective nature of the relief sought, nor the fact that a particular statutory application could only be heard by a court was sufficient. A stay postpones those proceedings; it does not eliminate them.
Can an arbitrator’s interpretation of a contract be appealed?
Nova Chemicals v. INEOS Canada Partnership, 2026 ABKB 563
Rarely, even where the parties have agreed to a relatively broad appeal right. Courts generally treat contract interpretation as a mixed question of fact and law and review it only for palpable and overriding error. It is not enough to show that another interpretation of the contract was available.
What happened
The dispute arose under a 2006 ethylene supply agreement between two neighbouring plants in Joffre, Alberta. NOVA brought audit claims for contract years 2012 to 2015 and 2017. The arbitrator dismissed them as time-barred because NOVA had not given formal notice within the agreement’s required 30-month period, and allowed INEOS’s counterclaim.
NOVA appealed on four grounds, characterizing them as errors of law or of mixed fact and law. The agreement provided that the award was final and binding except on questions of law and of mixed fact and law.
The standard that applied
Palpable and overriding error is an error that is obvious and goes to the core of the outcome. The appellant must show that its interpretation was the only reasonable one. An extricable legal error attracts correctness review, but such errors are rare because contract interpretation is highly fact-specific.
NOVA challenged the arbitrator’s findings on the time bar, affiliate pricing, allocation of marketing expenses and nameplate capacity. The court found neither palpable and overriding error nor an extricable legal error on any ground and dismissed the appeal in full.
The decision also illustrates the limits of the appeal right the parties had negotiated. Their agreement permitted appeals on questions of law and mixed fact and law, but not on questions of fact. The arbitrator’s factual findings were therefore beyond the court’s reach. Characterizing a ground as an “error of law” did not make it one. The court treated the interpretation grounds as attempts to reopen the interpretation itself, and disposed of part of the marketing expenses ground on the basis that the arbitrator’s conclusion was a finding of fact and therefore fell outside the appeal right altogether.
Appeal is only one route to court, and it is available only where the statute and the parties’ agreement permit it. The separate question of when a Canadian court will set aside or refuse to enforce an award was covered in an earlier review of Canadian decisions on setting aside and enforcing arbitral awards.
Does an arbitration stop while a bias challenge is before the court?
Atkinsréalis v. GIP Construction, 2026 ONSC 4785
Not automatically. A party that believes an arbitrator is biased must first raise the issue with the arbitrator. If the arbitrator declines to step down, the party can bring the challenge before the court, subject to the ten-day time limit under the Ontario Arbitration Act, 1991. The arbitration may continue in the meantime unless the court orders otherwise, and obtaining such an order requires meeting a high threshold.
What happened
During an Ontario construction arbitration, one party asked the arbitrator to recuse himself because of how he questioned witnesses. The arbitrator refused. The party then challenged that refusal in court under section 13 of the Act.
The court hearing of that challenge had run out of time and would not conclude until 22 September 2026, while the arbitration was scheduled to resume on 5 October. The challenging party therefore asked the court to pause the arbitration under section 13(7), a provision for which no reported authority was identified.
What a party must show to pause an arbitration
Section 13(7) allows an arbitration to continue while a challenge is pending unless the court orders otherwise, but does not prescribe a test. The court held that a party seeking a pause must establish a strong prima facie case, rather than merely the “serious issue to be tried” that ordinarily forms the first part of the injunction test. The court granted the stay on that basis.
The court set the threshold higher than usual partly because the evidentiary record was already fixed. The relevant evidence consisted of the arbitration transcripts, with no cross-examinations still to come.
Where the line may fall between questioning and cross-examination
The decision also indicates where the line may lie between permissible questioning by an arbitrator and impermissible cross-examination. The arbitrator had reasoned that he could not have been cross-examining because he was not a party and was simply trying to find the truth. The court rejected that reasoning, observing that, taken to its logical conclusion, it would mean that a judge’s questioning could never cross the line.
The court focused instead on the form and effect of the questions: whether they were leading and pointed, and whether they were designed to undermine a witness’s evidence or credibility. Based on the authority relied on by the applicant, another relevant consideration is whether the questioning creates the impression that the tribunal has taken a position on the facts, issues or credibility.
None of this has been finally decided. The court made no finding of bias because it had not yet reviewed the transcripts in light of both parties’ submissions, and it described its own view as an impression subject to the respondent’s submissions. The decision therefore indicates the approach the court intends to take, rather than establishing that the line was in fact crossed. That determination comes after 22 September.
What these decisions add to Canadian arbitration case law
Read together, the four decisions show how much can turn on the standard applicable to a particular challenge.
Procedural fairness is a question of law reviewed for correctness. In Green Light, the costs finding was vacated.
Contract interpretation is generally a question of mixed fact and law reviewed for palpable and overriding error. In Nova Chemicals, the Court dismissed all four grounds of appeal.
An applicant seeking a stay in favour of arbitration needs only an arguable case at the first stage of the analysis. In Davison, the court stayed the action.
Stopping an arbitration while a bias challenge is pending requires a strong prima facie case, above the ordinary threshold. In Atkinsréalis, the arbitration was paused.
The different outcomes therefore reflect more than the apparent strength of each complaint. In Nova Chemicals, four challenges to the arbitrator’s award failed under deferential standards. In Davison, by contrast, an arguable case was sufficient to satisfy the first stage of the stay analysis.
Green Light illustrates the same point from a different angle. The successful challenge concerned the process by which the costs decision had been reached, and procedural fairness was reviewed for correctness. A challenge to the percentages themselves would have been directed at the arbitrator’s assessment of the case.
Before framing a court challenge involving an arbitration, it is therefore important to identify the standard that will apply. That standard may be as significant as the underlying merits of the complaint.
Frequently asked questions
Who usually pays for arbitration?
Each party generally funds its own legal costs while the arbitration is underway, and the tribunal allocates those costs in the award. Costs commonly follow the event, although an arbitrator can depart from that approach where success is divided between the parties.
In Green Light Solutions v. Kern BSG, the arbitrator found that neither side had been substantially successful and made a divided costs allocation on that basis. In the circumstances of that case, procedural fairness required that the parties first be allowed to make submissions on entitlement in light of that finding.
Are arbitration clauses enforceable in Ontario?
Yes, and the mechanism depends on whether the arbitration is domestic or international.
For domestic arbitration, section 7 of the Ontario Arbitration Act, 1991 requires the court to stay a proceeding brought over a matter the parties agreed to arbitrate. Section 7 of the BC Arbitration Act, SBC 2020, c. 2 is the equivalent provision applied in Davison v. Novem Pharmaceuticals.
For international commercial arbitration seated in Ontario, the International Commercial Arbitration Act, 2017 gives the UNCITRAL Model Law force of law. Article 8 of the Model Law requires the court to refer the parties to arbitration unless it finds the agreement null and void, inoperative or incapable of being performed, and section 9 of the Act confirms that the court proceedings are then stayed. In British Columbia, section 8 of the International Commercial Arbitration Act, RSBC 1996, c. 233 performs the same function.
Under either regime, the applicant needs only an arguable case that the parties and subject matter fall within the arbitration agreement. The party resisting the stay must then establish a statutory exception, and those exceptions are interpreted narrowly.