Executive Summary: Key Legal and Evidentiary Issues

• Whether the arbitrator misapplied the cost-shifting rules set out in the Tarion Addendum under ONHWPA.

• Examination of the purpose and application of section 15(c) of the Tarion Addendum in arbitration cost decisions.

• Assessment of the reasonableness of awarding substantial indemnity costs against the purchaser in a consumer-protection context.

• Determination of the Divisional Court’s jurisdiction to hear a judicial review in a statutorily mandated arbitration.

• Evaluation of whether the arbitrator provided a coherent and consistent rationale for deviating from the default cost rule.

• Clarification of the difference between litigation cost principles and consumer-oriented statutory regimes.

Background and agreement

In April 2016, Niranjan Shah entered into an Agreement of Purchase and Sale (APS) with 625 Sheppard Bayview Village GP Inc. to purchase a pre-construction condominium unit in Toronto. The agreement included a Tarion Addendum, required by the Ontario New Home Warranties Plan Act (ONHWPA), which established a framework for early termination, arbitration, and legal cost rules. The Tarion Addendum also mandated that disputes over termination must proceed to arbitration, and that unless there is "just cause," the vendor must pay the purchaser’s arbitration costs and reasonable legal expenses.

On July 10, 2019, the developer cancelled the project, citing failure to secure financing by the contractual deadline. Shah later initiated arbitration seeking specific performance or damages for the cancellation. The arbitration was conducted by Arbitrator Marvin Huberman.

The arbitration and cost decision

In January 2024, Arbitrator Huberman dismissed Shah’s claim in full, finding the developer had taken all commercially reasonable steps to satisfy the financing condition and was within its rights to terminate. Following the merits ruling, the arbitrator invited cost submissions. On March 18, 2024, he ruled that while the vendor would pay the arbitrator’s fees and disbursements, Shah would be required to pay the developer’s legal fees of $119,499.34 on a substantial indemnity basis.

This costs decision appeared to contradict section 15(c) of the Tarion Addendum, which presumes that purchasers are entitled to recover their legal fees unless there is just cause to depart. The arbitrator applied litigation-style costs rules rather than the statutory consumer-oriented cost regime.

Judicial review and legal issues

Shah applied for judicial review to the Ontario Divisional Court. The key legal issues were whether the Court had jurisdiction to review a private arbitration and whether the arbitrator's cost decision was reasonable. The Court found that because arbitration was mandated by ONHWPA, the proceeding was subject to judicial oversight. It emphasized that ONHWPA is a consumer protection statute, and the cost-shifting regime in section 15(c) was designed to protect buyers in an imbalanced commercial context.

The Court determined that the arbitrator’s approach was legally flawed. The arbitrator had relied on litigation cost principles from the Rules of Civil Procedure without justifying their relevance under ONHWPA. The Court also found the decision to be internally inconsistent: the arbitrator applied the Tarion cost rule in favor of the vendor for arbitration fees but rejected it without clear justification when deciding legal fees.

Outcome and result

The Ontario Divisional Court allowed Shah’s judicial review application. It set aside the portion of the arbitrator’s ruling that ordered Shah to pay the developer’s legal fees and remitted the matter back to the arbitrator for reconsideration under the correct legal framework. The Court concluded that the arbitrator failed to provide a rational or coherent justification for departing from the statutory cost rule.

In addition, the Court ordered the developer to pay Shah $10,000 in costs for the judicial review. The ruling reaffirms the primacy of consumer protection principles in disputes under ONHWPA and restricts arbitrators from reverting to general litigation cost rules where a specific statutory cost regime applies.