The recent decision of the Court of Appeal for Ontario in CNH Canada Ltd v Chesterman Farm Equipment Ltd, 2018 ONCA 637 (the "Decision") has the potential to significantly change the scope and frequency of costs awards made by the Environmental Review Tribunal ("ERT") The court ruled that tribunals may now consider conduct outside of a legal proceeding when determining whether a party’s conduct is unreasonable enough to attract a costs award. The decision is a significant departure from earlier case law which limited the conduct to be considered to that which occurred during the legal proceeding before the tribunal. That ruling specifically excluded conduct related to the subject matter of the dispute between the parties.
To date, costs awards at the ERT have been extremely rare and made only where the conduct of a party during the ERT proceeding was extraordinarily objectionable. As a result of the Decision we can now expect to see parties vigorously pursue costs awards for conduct unrelated to the proceeding. For example, in a hearing relating to groundwater monitoring conditions in a waste management approval, we might expect to see an appellant or intervenor seek costs on the basis of the interactions between the parties relating to groundwater monitoring at any time before the approval hearing was commenced. Accordingly, parties should now assume their conduct at all stages of a project could form the basis for a future costs award and should act accordingly.
CNH Canada Ltd v Chesterman Farm Equipment Ltd – Tribunal Decision
The Decision is from an appeal from a decision of the Agriculture, Food and Rural Affairs Appeal ("AFRAA") Tribunal about a standard form farm equipment dealership agreement entered into between Chesterman Farm Equipment Ltd. and CNH Canada Ltd. Chesterman was a dealer of farm equipment for CNH. Their business relationship began in 1987. In 2006, CNH gave notice it would not renew a 2000 dealership agreement with Chesterman. Shortly thereafter, amendments to regulations made under the Farm Implements Act, RSO 1990, c F4, came into force. The amendments affected the dispute between the parties. On the basis of the new authority in the Farm Implements Act, Chesterman referred the dispute to AFRAA.
AFRAA found for Chesterman and awarded Chesterman $200,000 in damages. It also awarded partial indemnity costs to Chesterman in the amount of $376,338.05. Chesterman had sought more than $600,000 in costs.
AFRAA, like the ERT, is governed by the Statutory Powers Procedures Act, RSO 1990, c S22 (the "SPPA"), which governs most administrative tribunals in Ontario. The SPPA states that, unlike in civil courts, costs may only be awarded when the party against whom the costs award is sought acted unreasonably or if their conduct was frivolous, vexatious or in bad faith.
Section 17(2) of the SPPA states:
(2) A tribunal shall not make an order to pay costs under this section unless,
(a) the conduct or course of conduct of a party has been unreasonable, frivolous or vexatious or a party has acted in bad faith; and
(b) the tribunal has made rules under subsection (4).
In this case, AFRAA found CNH's conduct was unreasonable. It considered both CNH’s conduct in ending the dealership agreement and CNH's conduct during the AFRAA hearing (the "Hearing"), including CNH's decision to change its legal position midway through the Hearing. In making its decision, the Tribunal relied on the SPPA, its own Rules and on the Farm Implements Act which it found preserved common law rights and remedies, including the right to award costs.
Divisional Court Decision
The Divisional Court found that AFRAA exceeded its jurisdiction and set aside AFRAA's costs award. The Divisional Court reviewed the SPPA and AFRAA's Rules, which provided for a non-exhaustive list of the types of conduct that could attract a costs award. All of those were types of conduct that might occur within a proceeding that might lengthen or unnecessary complicate the proceeding, like failing to attend a hearing or comply with procedural orders. The commentary to AFRAA's Rules also referenced conduct occurring during the hearing.
The Divisional Court found that the unusual or extreme circumstances which could attract a costs award must occur during the Hearing, stating: "conduct that relates to the subject matter of the proceeding (i.e. breach of contract) is not a basis for an award of costs under the Tribunal's Rules or s. 17.1 of the SPPA."
The Divisional Court was also critical of the conduct during the Hearing that AFRAA considered. The Divisional Court stated that much of the impugned conduct could not be laid entirely at the feet of CNH. On the issue of the change in position, the Divisional Court found that the issues had to be litigated in any case and thus, should not attract a costs award. Finally, the Divisional Court found AFRAA's reliance on the common law was also an error because no such common law principle exists. The Divisional Court reiterated that AFRAA, as a creature of statute, only had the jurisdiction to award costs as set out by the SPPA and its own Rules. That jurisdiction was limited to ordering costs where there had been unreasonable, frivolous, vexatious or bad faith conduct within the course of a proceeding before AFRAA.
Court of Appeal Decision
Chesterman cross-appealed the Divisional Court's costs award decision to the Court of Appeal. The Court of Appeal overturned the Divisional Court's decision and reinstated the costs award made by AFRAA, finding it was reasonable.
The key to the Court of Appeal's decision was its finding that there is nothing in the SPPA or AFRAA’s Rules that restricted it from awarding costs based on conduct relating to the subject matter of the proceeding (the actions that caused a need for a hearing) rather than conduct within the proceeding itself (the actions of the parties at the hearing). It further found that nothing in AFRAA's jurisprudence imposed such a restriction and that in any case, AFRAA was not bound by its own decisions.
The Court of Appeal's decision applies not only to AFRAA but to any tribunal to which the SPPA, applies, including the ERT. AFRAA’s Rules on Costs are almost identical to those of the ERT and contain the same non-exhaustive list of the types of conduct as AFRAA's Rules. As such, the statutory power of the ERT to award costs is similar to that of AFRAA.
A similar issue arising from an ERT decision on costs was recently litigated before the Divisional Court in Mohawks of the Bay of Quinte v Director, Ministry of the Environment, 2018 ONSC 1929. In that decision, made before the release of the Court of Appeal's decision in Chesterman, the Divisional Court cited its decision in Chesterman as authority for the principle that it was only conduct "in the course of a proceeding" that could found a costs award. While that case is markedly different as the ERT did not find there was any objectionable conduct by the party against whom the costs award was sought, whether in the course of the proceeding or not, that case demonstrates the impact Chesterman may have on future ERT costs awards if there is a finding that a party, at any time, acted unreasonably.
It is reasonable to assume that the Decision will now encourage parties seeking costs to cite any conduct, including conduct occurring years before an ERT hearing, as unreasonable enough to warrant a costs award. This could include not only conduct that is viewed as procedurally unreasonable but conduct relating to the subject matter of the dispute. Returning to the earlier example of an approval holder for a waste management facility, it can be expected that now, an appellant might seek costs based on conduct such as failing to provide timely notice (i.e. procedurally unreasonable conduct) as well as based on conduct such as failing to implement a groundwater monitoring plan as requested by the appellants (i.e. the subject matter of the dispute).
Approval holders, and others who may one day find themselves before the ERT as a result of an appeal (such as under the Environmental Bill of Rights), should:
- understand that their actions now may be the subject of a costs application many years in the future;
- document decisions, consultation and actions (by all parties, including potential future intervenors or appellants) to successfully challenge any costs application made later;
- consider seeking costs themselves if faced with consistently unreasonable behaviour by other parties; and
- seek legal counsel throughout the process to help evaluate and document when "unreasonable conduct" occurs and to help avoid significant future costs awards.
As demonstrated by the Court of Appeal's Decision in Chesterman, costs awards involving legal and consulting costs can be significant. While the damages award in Chesterman was only $200,000, the costs award was approximately $375,000. Taking steps early in the process to prevent future adverse costs awards will now be particularly important in light of the Court of Appeal's decision.