Hidden Risk of Arbitration: Can an arbitrator withhold your award if the other side doesn’t pay?

Picture this: you have a contractual dispute that must be resolved via arbitration. As part of this process, you jump through all the hoops – and incur all of the cost, time, and inconvenience – associated with taking your matter through to an arbitration hearing. The arbitrator’s fees are split between you and your opponent.

The hearing goes swimmingly and it is all but academic that you will be victorious. Following the hearing, the arbitrator advises that they will release their award once the last of their fees have been paid. All of a sudden, your opponent decides that they don’t want to pay the arbitrator. The arbitrator, who has done their job, says that they are withholding their award until their fees are paid.

What happens now?

How do you get your award?

The Old Act and the Old Rules

Under the Arbitration Act, RSBC 1996 c 55 (the “Old Act”) and the British Columbia International Commercial Arbitration Centre’s (the “Centre”) Revised Domestic Commercial Arbitration Rules of Procedure (the “Rules”) you really had two options:

  1. Pay your opponent’s share of the arbitrator’s fees; or
  2. Terminate the arbitration and go to court.

This may seem unfair, but it’s also the truth.

In fact, the Old Act did not address this issue at all. Sections 11 and 41 of the Old Act address costs, but not in the requisite context. While some have tried the tact of applying to the court to remove their arbitrator for unduly delaying the process of making an award per section 18 of the Old Act, the Supreme Court of British Columbia has held that arbitrators are permitted to withhold an award in the event of nonpayment of fees.[1]

The Old Rules suggest that arbitrations should be conducted in a just, speedy, and economical manner.[2] However, in the same breath, they also provide that parties are jointly and severally liable to pay Centre’s fees and the arbitrator’s fees and expenses.[3] The Rules also make clear that an award can be withheld if there are any outstanding fees[4] and that the arbitration may be terminated if the arbitrator believes the arbitration proceedings have become “impossible”.[5] Case law suggests that an arbitrator can find proceedings to have become “impossible” where the parties fail to pay the arbitrator’s fees.[6]

Under the Old Act and the Old Rules the unfortunate reality is that, if, after an arbitration proceeding concludes and arbitration fees remain outstanding, an award may be withheld because your opponent refuses to pay their fees. At this time, the arbitrator will be entitled to terminate the arbitration if you do not “preserve the proceeding”[7] by paying your opponent’s share.

Will this issue soon be resolved by the New Act and New Rules?

The Arbitration Act, S.B.C., c. 2 (the “New Act”) repealed and replaced the Old Act as of September 1, 2020. The New Act, like the Old Act, provides that an arbitrator may withhold an arbitral award from the parties if full payment of its fees and expenses has not been received.[8] However, unlike the Old Act, the New Act explicitly addresses the situation where an arbitrator withholds an arbitral award.[9] In particular, the New Act provides that, if an arbitrator refuses or fails to deliver an arbitral award, a party may, upon notice to the other parties and the arbitrator, make a request to the Centre (which will soon be renamed as “Vancouver International Arbitration Centre”) for one or more of the following:

  1. a direction that the arbitrator deliver the arbitral award on the payment in trust to the designated appointing authority of all or part of the fees and expenses demanded;
  2. a determination of the amount of fees and expenses payable to the arbitrator;
  3. a direction that the fees and expenses be paid out of the money paid in trust to the Centre;
  4. a direction as to how the balance of the money paid in trust to the Centre be paid out.

The New Act also provides that, if the Centre does not make a determination or direction per the above, a party may apply to the Supreme Court of British Columbia for a similar order.

The Old Rules were replaced with new rules as of September 1, 2020 (the “New Rules”). While there are certainly differences between the Old Rules and the New Rules, both impute joint and several liability for fees and expenses associated with the arbitration.

While it is a positive that there is some legislative recognition to the fact that fees are occasionally not paid during an arbitration, the New Act and the New Rules seemingly do not resolve the risk that a party who has done everything right and has paid their fees may need to pay the fees of their opponent just to get justice.

Ways to avoid this issue from arising

The most fool-proof way of ensuring that this type of issue doesn’t arise is to have fees paid up front. This is often referred to as “security for costs”. The New Rules allow an arbitrator to require parties to deposit with the Centre an advance for the anticipated costs of the arbitration, including the arbitrator’s fees.[10] If you think there is a chance that your opponent will refuse to pay its fees at the end of an arbitration, it may be wise to apply to your arbitrator shortly after the proceeding commences and seek an order that fees be paid at the beginning of the proceeding.

Other options include, but are not limited to:

  1. drafting contracts which provide that, if disputes arising from said contract go to arbitration, estimated fees for the arbitrator shall be paid up front or held in trust;
  2. requesting the Arbitrator obtain a retainer for his anticipated fees;
  3. mutually agreeing with the other side that fees for the arbitration be paid before the arbitration commences.

If none of the above options are chosen or possible, it is important that the arbitrator understands that the parties have agreed to share arbitration costs equally. In particular, the arbitrator’s award should reflect that fees are not owed jointly and severally. This means that if fees are not paid, an award should be increased or decreased on the basis that the parties have agreed to split arbitration costs.

Conclusion

In conclusion, you are jointly and severally liable for arbitration fees once an arbitration commences and an arbitrator can withhold an award if your opponent fails to pay their share of the arbitration fees. If you want to avoid having to salvage the arbitration by paying your opponent’s fees, ensure that you consult legal advice when preparing your contracts or negotiate pre-payment of fees with the other side before the arbitration commences.


[1] Ben 102 Enterprises Ltd. v. Ben 105 Enterprises Ltd., 2014 BCSC 64

[2] Rule 21 of the Rules 

[3] Rule 41(5) of the Rules

[4] Rule 38(7) of the Rules

[5] Rule 36(3) of the Rules

[6] Tresoro Mining Corporation v. Mercer Gold Corp. (B.C.), 2018 BCCA 160 at para 32

[7] Bott v. Sorley, [1998] B.C.J. No. 2023

[8] Section 52(1) of the New Act

[9] Section 52(3) of the New Act

[10] Rule 23 of the New Rules

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