Executive Summary: Key Legal and Evidentiary Issues

• Appeal challenged an arbitrator’s discretionary allocation of legal costs in a construction dispute.

• Withheld payment due to construction deficiencies was central to the dispute over certified invoiced amounts.

• Arbitrator determined both parties had mixed success and split costs accordingly, rather than applying the usual equal-costs rule.

• Court held no extricable question of law was raised that would justify appellate intervention under section 59 of the Arbitration Act.

• Claims of procedural unfairness fell under section 58 and were not properly before the Court of Appeal.

• Consideration of pre-litigation conduct was found to be relevant and within the arbitrator’s discretion.

Facts of the case
Green Light Solutions Corp. (GLS), the owner of a construction project in Nelson, British Columbia, entered into a contract with Kern BSG Management Ltd. (Kern) as the contractor. Kern submitted invoices totaling over $1.63 million for work completed. GLS refused to pay, citing ongoing deficiencies in the work, and maintained that it was entitled to withhold payment indefinitely pending a formal deficiencies assessment by PBX Engineering Ltd., as stipulated in the contract. After an unsuccessful mediation, Kern commenced arbitration proceedings on February 7, 2023.

During the arbitration, GLS acknowledged that at least $1,392,736.38 was properly invoiced and owing. The arbitrator accepted this concession, noting that the deficiencies were not part of the issues to be resolved in arbitration. He concluded that GLS ought to have released the certified funds by January 15, 2023, and awarded interest from that date under the contract terms. Regarding costs, the arbitrator found that neither party was substantially successful but allocated 60% of Kern’s costs to Kern and 40% of GLS’s costs to GLS. He considered the conduct of both parties, including contract deviations that had led to the dispute.

The Court of Appeal’s decision
GLS applied to the British Columbia Court of Appeal for leave to appeal the arbitrator’s cost award and also sought a stay. Justice Edelmann dismissed the application, finding that it did not raise an “extricable question of law” under section 59(3) of the Arbitration Act, S.B.C. 2020, c. 2. The arbitrator had correctly identified and applied the legal test for determining substantial success and exercised his discretion appropriately. The Court emphasized that mere disagreement with how the law was applied to the facts does not create a basis for appeal.

GLS further argued that the arbitrator erred by not inviting submissions on costs and therefore failed to consider potential offers to settle. The Court held that such concerns were not appealable under section 59, but instead should be brought under section 58(1)(h), which governs procedural fairness and is within the jurisdiction of the BC Supreme Court. The Court also rejected the claim that the arbitrator erred by considering pre-litigation conduct, interpreting those comments as part of a broader evaluation of success.

Outcome
The Court denied leave to appeal and awarded costs to Kern. It reaffirmed the principle that appellate review of arbitral awards is limited to clear legal errors and that arbitrators maintain broad discretion over cost allocations, particularly where neither party achieves complete success.