[1]               The Appellant (90 George Street Ltd.) is the declarant of the Respondent, the Ottawa-Carleton Standard Condominium Corporation No. 815.

[2]               The Respondent and its unit owners (Ottawa-Carleton Standard Condominium Corporation No. 815) are the owners of a 16-floor residential condominium containing 104 units. The Appellant owns a three-floor commercial podium, situated beneath the residential condominium.

[3]               The Condominium Act, 1998, S.O. 1998, c.19 [Condominium Act], provides that declarants control condominiums until construction of the project is completed, the building is partially or fully occupied and a condominium corporation is created. At that point control and responsibility for the condominium passes to the Board of Directors of the condominium corporation.

[4]               The Respondent condominium corporation was created on June 18, 2009, upon the Appellant’s registration of the description and declaration.

[5]               The Condominium Act requires a declarant to prepare “a disclosure statement” for every purchaser of a unit (s. 72). A disclosure statement must include a copy of the budget statement for the one-year period immediately following the registration of the declaration (Condominium Act, s. 72(3)).

[6]               A budget statement is comprised of a number of elements, including a statement of the common expenses of the corporation. The statement must include the proposed amount of each expense along with the particulars of the type, frequency, and level of services to be provided (Condominium Act, s. 72(6)).

[7]                One of the purposes of the disclosure statement is to enable individuals contemplating the purchase of a condominium unit to have a full understanding of their rights and obligations on unit purchase but more importantly, what the costs of owning it will be.

[8]               The Appellant prepared several draft first-year budgets prior to the registration of the declaration on June 18, 2009. The final first-year budget showed total condominium operating expenses of $756,912.00.

[9]               The Respondent’s first operational year was from June 18, 2009 to June 17, 2009.

[10]           Audited financial statements, dated February 23, 2012, for the first operational year revealed a shortfall of $125,659.00 between the actual operating expenses and the first-year budget. A $10,000.00 insurance deductible had been included in the shortfall. At some point it was determined that the deductible was reimbursed to the Respondent. As a result the Respondent’s shortfall claim was reduced to $115,659.00.

[11]           The Respondent notified the Appellant of the shortfall. The Appellant disputed the shortfall.

[12]           Section 132(3) of the Condominium Act requires that budget statement disagreements proceed to mediation and, if unresolved, then on to arbitration.

[13]           Mediation failed to resolve the dispute. Thereafter, the Respondent proceeded to arbitration.

[14]           The parties mutually selected a retired Superior Court Justice – the Honourable James Chadwick Q.C. – as the arbitrator (the “Arbitrator”).

[15]           The arbitration took place over four days: June 4-5, 2013, and August 14-15, 2013.

[16]           The Appellant appeals both the decision of the arbitrator and also the subsequent awards of pre-judgment interest and costs.

[17]           The issues on appeal before this Court are as follows:

[18]            Section 45(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 [Arbitration Act], provides that a party may only appeal an award of an Arbitrator to the Superior Court on a question of law, with leave.

[19]           Leave was granted by the Order of Justice M. Labrosse, dated April 29, 2013.

[20]           On September 15, 2013, the Arbitrator released his Interim Award (dated September 10, 2013).

[21]            The Arbitrator found in favour of the Respondent and awarded the Respondent damages in the amount of $115,669.00 plus interest at the rate prescribed in the condominium corporation’s bylaw number 1 (article 11.5) calculated from April 23, 2012, including interest calculated at a rate of three percent (3%) over the prime rate compounded monthly. Bylaw 1 provides that this interest rate applies to unpaid common element costs.

[22]           In arriving at his award, the Arbitrator found that he was statutorily prohibited from considering the issues raised by the Appellant by way of defence and set off. Further, he found that s. 75(1) of the Condominium Act made a declarant “fully liable” for any first-year shortfall, whether the expenditures are covered in the declarant’s budget or not, that he was restricted to an analysis of the total of the expenditures set out in the audited first-year statement, and that the Appellant was not entitled to an item-by-item evaluation of the expenses or to challenge them as being excessive or improper. 

[23]           Two of the largest expense items in dispute related to the cost of security and superintendent/concierge services. 

[24]           The estimates in the first-year budget were $196,227.00 for security and $30,867.00 for a concierge.  The actual claimed first-year expenditures were $248,684.00 for security and $92,552.00 for a superintendent and a concierge combined.   

[25]           On October 24, 2013, the Arbitrator released his decision on costs and awarded:

[26]           The Appellant argued that that the appropriate standard of review of an Arbitrator’s decision is correctness, and that the Supreme Court’s recent decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 [Sattva] is distinguishable as this appeal does not arise from a commercial arbitration.

[27]            In the alternative, the Appellant argued that regardless of the applicable standard, correctness or reasonableness, the Arbitrator’s decision should be set aside as neither standard was met.

[28]           The position of the Respondent is that the Supreme Court’s recent decision in Sattva is applicable, and as such the appropriate standard of review is reasonableness, a standard that the award has met.

[29]           Neither party cited an Ontario appellate decision as authority establishing the appropriate standard of review of an Arbitrator’s decision in the context of an arbitral award held pursuant to the Condominium Act.

[30]           In Sattva, a decision involving a complex dispute about contractual interpretation, the Supreme Court held that the appropriate standard of review for commercial arbitration decisions is reasonableness.

[31]           The Supreme Court noted that the judicial review framework developed in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 [Dunsmuir], was not entirely applicable to the commercial arbitration context.

[32]           At para. 104 of Sattva the Court wrote that “appellate review of commercial arbitration awards takes place under a tightly defined regime specifically tailored to meet the objectives of commercial arbitration and is different from judicial review of a decision of a statutory tribunal.” The Court pointed to the following distinctions:

[33]           However, the Supreme Court did not entirely disregard the Dunsmuir framework and post-Dunsmuir jurisprudence in relation to identifying the appropriate standard of review for commercial arbitration decisions.  The Court wrote:

[34]           At the time of writing this decision, only one Ontario trial decision had applied Sattva in the arbitral context.

[35]           In Ottawa (City) v. Coliseum Inc., 2014 ONSC 3838, Mackinnon J., in the context of contractual interpretation and the Arbitration Act, followed the Supreme Court’s reasoning in Sattva, and held that the applicable standard of review from the arbitration award was reasonableness (at para. 44).  However, this case can be distinguished because it did not involve an arbitration conducted pursuant to the Condominium Act.

[36]           Prior to the Supreme Court’s decision in Sattva the Ontario Court of Appeal had held that the appropriate standard of review on questions of law from arbitral decisions was correctness.

[37]           In Wawanesa Mutual Insurance Co. v. Axa Insurance (Canada), 2012 ONCA 592, 112 O.R. (3d) 354 [Wawanesa Mutual], the issue in dispute was the proper interpretation of a provision of the Insurance Act. Wawanesa appealed the decision of an arbitrator to the Superior Court of Justice. The Superior Court of Justice dismissed the appeal. On the question of standard of review, the Court of Appeal noted that the issue before the court raised a question of law, and that the standard of review was correctness.

[38]           In Omers Realty Corp. v. Sears Canada Inc. (2006), 2006 CanLII 16477 (ON CA), 211 O.A.C. 179 (Ont. C.A.), an arbitrator ruled that a landlord could recover its shortfall from eligible tenants under the Municipal Act, R.S.O., c. M.45, as amended by S.O. 1998, c. 3, s. 30. The Court of Appeal held that the arbitration panel erred in determining that the landlord exercised a power of statutory decision (ibid., para. 27). Instead, the issue before the arbitration board was one of statutory interpretation (ibid., para. 28). As such, the function of the board was to interpret the legislation and determine whether the landlord’s actions were in compliance with the legislative requirement (ibid.). The Court wrote that the board was required to be correct in its interpretation (ibid.). As a result, any appeal from the board’s determination raised a question of law to be reviewed on the correctness standard (ibid.).

[39]           In my view, arbitration pursuant to the Condominium Act is distinguishable and very different from the arbitration of a commercial dispute.

[40]           In a commercial arbitration, the parties are presumed to possess commercial knowledge and to have equal bargaining power. This presumption does not necessarily apply in a case where a dispute arises between the developer/owner/declarant and a condominium corporation where an imbalance of expertise and bargaining power may frequently exist.

[41]           This imbalance is reflected in the statutory purpose of the Condominium Act. The Ontario Court of Appeal has noted that the purpose the Condominium Act is to provide consumer protection, as well as predictability and certainty to those purchasing a condominium, enabling them to make informed financial decisions (Lexington on the Green Inc. v. Toronto Standard Condominium Corp. No. 1930, 2010 ONCA 751, 102 O.R. (3d) 737 at paras. 49, 51 [Lexington]; Toronto Standard Condominium Corp. No. 2095 v. West Harbour City (I) Residences Corp., 2014 ONCA 724, 46 R.P.R. (5th) 1).

[42]           While a condominium corporation is a legal “corporation,” this alone is not sufficient to deem it a commercial entity with expertise in the area of commercial or condominium law.

[43]           The Boards of Directors of a condominium corporation are generally comprised of unit holders who may have very little or no expertise in condominium law and commercial transactions. On the other hand, developers of condominium projects who eventually become declarants usually have expertise in commercial matters and condominium law.

[44]           For the above reasons I find that the Supreme Court’s decision in Sattva is distinguishable from the case at bar and that the standard of review of an arbitration award rendered pursuant to the Condominium Act is correctness.

[45]           In the case before the Court, the arbitrator was required to be correct in his interpretation of s. 75 of the Condominium Act and in his awards of pre-judgment interest and costs, and the awards must be reviewed on this basis.

[46]             The central argument of the Appellant is that the evidence before the Arbitrator demonstrated that a large portion of the claim related to items not contemplated by the first-year budget, were excessive and unreasonable and should not have been included in the condominium first-year expense budget.

[47]           The Arbitrator concluded that s. 75 of the Condominium Act contemplated a straightforward mathematical calculation based upon the condominium corporation’s first-year deficit requiring a declarant to pay the condominium corporation the difference between the first‑year budget and the actual first‑year audited financial statements.

[48]            Further, he held that the limited “set-offs” were specifically spelled out in s. 75 of the Condominium Act, that he was restricted by the wording of the legislation and that he was not permitted to conduct a line-by-line inquiry into whether any of the first-year expenditures that comprised the claim were actually provided for or contemplated in the first-year budget or were reasonable.

[49]           In his Interim Award, the Arbitrator held that, in the event he had made a reviewable error in his interpretation of s. 75 of the Condominium Act he nevertheless rejected the Appellant’s evidence and argument that the expenses were unreasonable.

[50]           With respect to the argument that the security and superintendent/concierge expenses were excessive, the Arbitrator noted that the Appellant’s President sat on the board of directors for over a year and failed to complain about the expenses and was “opposed to any reduction in services.”

[51]            The Appellant also argued that some of the expenses were for repairs that should have been covered by warranties.  The Arbitrator rejected that argument, stating that the Appellant failed to lead any evidence of the warranties and its only witness supporting this theory never read the warranties and “had very little involvement with these matters.”

[52]           As noted above, two of the largest expense items in dispute related to security expenses and superintendent/concierge services.  The estimates in the first-year budget were $196,227.00 for security and $30,867.00 for a concierge/doorman.  The actual claimed first-year expenditures were $248,684.00 for security and $92,552.00 for a superintendent and a concierge combined.

[53]           The Appellant led evidence of Board member Terrence Guilbault, that security costs were higher during the first few months of operation because people were moving into the building and that a request had been made to reduce both security and superintendent costs by the condominium. 

[54]           The Arbitrator rejected the evidence of Mr. Guilbault having made an initial determination that he could not conduct a line-by-line analysis of various expenses. 

[55]           The Arbitrator found that s. 75(1) made a declarant fully liable for any first-year shortfall, and that he could not consider issues raised by the declarant by way of defence and set-off, noting that, where a declarant believes that a condominium corporation has made unreasonable expenditures, it may seek a remedy by way of an oppression claim under s. 135 of the Condominium Act.

[56]           After discussing relevant jurisprudence the Arbitrator concluded: “[e]ven if I am wrong in my interpretation of s. 75 of the Act, the proper determination of the short fall is the bottom line, not an item by item evaluation.” (para. 37)

[57]           Notwithstanding this comment it is important to note that the Arbitrator did proceed to conduct an evaluation of the Appellant’s two main arguments regarding the propriety of the security and superintendent/concierge expenses contained in the shortfall amount.

[58]           The Appellant argues that the Arbitrator erred and was incorrect in his interpretation of s. 75(1). The Appellant submits that, while s. 75(1) provides that a declarant is accountable for the any deficit between its budget and a condominium corporation’s first-year budget statement, when the requirements of s. 72(6) are considered, s. 75 must be interpreted to mean that the deficit must relate to items that are properly identified as common expenses. Accordingly, an analysis of the expenses and deficit is proper and appropriate.

[59]           The Respondent argues that the Arbitrator did not err and was correct with respect to the interpretation of s. 75. The Respondent submits that the meaning of s. 75(1) is clear – a declarant is responsible for the difference between the first-year budget and the actual first-year financial statement.

[60]           The Respondent submits that the policy behind s. 75 is to protect purchasers of condominium units by preventing a developer from producing an unreasonably low budget statement and misleading purchasers to believe that monthly expenses will be lower than actual expenses. As such, an arbitrator has no discretion under the Condominium Act to analyze, deduct or set off expenses in either the declarant’s budget or the condominium’s first-year expense statement nor is there discretion to assess the reasonableness of an expense save and except as provided for in s. 75(4).

[61]           In light of the Arbitrator’s factual conclusions and, in the event that he was incorrect regarding his interpretation of s. 75, the Respondent maintains that the result of the arbitration would have been the same regardless of the interpretation of s. 75 of the Condominium Act.

[62]           The Supreme Court in Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, set out, at paras. 29-30, that:

[63]           At page 87 of his text Construction of Statutes, 2d ed., (Toronto: Butterworths, 1983) E.A. Driedger explains:

[64]           The Court of Appeal, at para. 34 of  Wawanesa Mutual, sets out the following three-step purposive approach to statutory interpretation:

[65]           The phrase “entire context” includes “the history of the provision at issue, its place in the overall scheme of the Act, the object of the Act itself, and the legislature’s intent in enacting the Act as a whole and the particular provision at issue” (Wawanesa Mutual, at para. 35).

[66]           A “just and reasonable result” promotes “applications of the Act that advance its purpose and avoids applications that are foolish and pointless” (ibid.).

[67]           Relevant sections of the Condominium Act are set out below:

[68]           Section 72(6) requires a budget statement include a number of elements, including

[69]           As set out above, s. 75(1) provides that a declarant is accountable to a condominium corporation for the first-year budget statement.

[70]           Section 72(6) sets out the elements that comprise a declarant’s budget statement.  Most of the elements directly relate to common expenses. However, s. 72(6) also includes elements that do not directly impact the “bottom line” of the budget, such as the statement of the status of all pending lawsuits, and the summary of the most recent reserve fund study.   

[71]           Sections 75(2), 75(3) and 74(4) proceed to set out the specifics of how a declarant is financially accountable to a condominium corporation.

[72]           Section 75(4) provides a set-off for a declarant where revenues, as described in s. 75(3), are higher than the budgeted amount, and where actual common expenses, as set out in s. 75(2), are also higher than the budgeted amount.

[73]           Section 75(2) establishes that a declarant must pay a condominium corporation the amount by which the corporation’s total actual amount of common expenses exceeds the declarant’s total budgeted amount.

[74]           An ordinary and plain grammatical reading of the words of s. 75(1) – “by which the total actual amount of common expenses…exceeds the total budgeted amount” – supports the interpretation that the section requires a declarant to be accountable to the condominium corporation for all of the elements that make up the budget statement: monetary and non-monetary.

[75]           As noted above, the statutory purpose of the Condominium Act is consumer protection – it provides predictability and certainty for those purchasing a condominium to make informed decisions (Lexington at paras. 49, 51).

[76]           Because there is no jurisprudence on the interpretation of s. 75 as it is currently drafted, it is helpful to consider judicial interpretation of earlier versions of the predecessor provision as part of the analysis of the context in which the section is found.

[77]           In Benner et al. v. HLS York Developments Ltd. (1985), 1985 CanLII 1965 (ON SC), 21 D.L.R. (4th) 652, (Ont. H. Ct. J.) [Benner], Carruthers J. considered s. 52 of the Condominium Act, R.S.O. 1980, c. 84. 

[78]           The relevant portions of s. 52 of the 1980 statute read as follows:

[79]           In interpreting s. 52(8) Carruthers J. wrote at para. 30:

[80]            Carruthers J. found that s. 52(8) would not apply to hold a declarant liable where the common expenses incurred were not set out in the budget statement.

[81]           For the purposes of comparison, the relevant portions of the two provisions read:  

[82]           The key difference between the two provisions appears to be the removal of the phrase “where the total amount incurred for the common expenses provided for in the budget statement exceeds” from the current legislation. The removal of this phrase suggests a legislative intent to hold declarants fully liable for any budget shortfall in the first-year of operation between the actual expenses and the budgeted amount, regardless of whether the elements going to the total actual amount are contemplated in the budget, are reasonable, or are excessive.

[83]           The Condominium Act contemplates the possibility of budget disagreements and provides procedures to address these particular disputes (s. 132(3)).  In Metropolitan Condominium Corp. No. 1143 v. Peng (2008), 67 R.P.R. (4th) 97 (Ont. S.C.),  Pattillo J. wrote that the purpose of the mandatory mediation and arbitration provisions of the Condominium Act “is to permit, among other things, the expeditious resolution of certain disagreements … in a simple and inexpensive manner” (at para. 14. See also McKinstry v. York Condominium Corp. No. 472 (2003), 2003 CanLII 22436 (ON SC), 68 O.R. (3d) 557 (Ont. S.C.) at para. 19). 

[84]           The Appellant argued that, if an arbitrator had no authority to consider the propriety and reasonableness of the budget elements included in the shortfall, that this would render the dispute mechanisms meaningless.

[85]           The Respondent argues that the Arbitrator’s interpretation of an arbitrator’s authority protects purchasers by making developers fully liable for any shortfall in the actual total expenses or revenues of the condominium, thereby encouraging developers to provide an accurate and conservative budget for the first-year operations.

[86]           In my view, the Respondent’s position leads to an unjust and unreasonable result as well as an improper interpretation of the provision. The legislature would not have mandated an alternative dispute resolution process for budget statement disputes, and then removed both the ability of the declarant and authority of the arbitrator to consider the propriety and reasonableness of any elements contained in the shortfall. Additionally, the principles of fairness support this interpretation – otherwise there would be no restriction on what expenses and elements a condominium corporation could include in its first-year statement.

[87]           It is my finding that a declarant is fully liable to the condominium corporation for any budget shortfall in the first-year of operation; however, a declarant’s liability is not absolute.  Through the mandated alternative dispute resolution process a declarant may argue, and an arbitrator may consider, the propriety and reasonableness of any elements contained in the shortfall

[88]           The standard of review is correctness and, for the reasons set out above, I find that the Arbitrator’s interpretation of s. 75 of the Condominium Act was incorrect.

[89]           Notwithstanding my finding the Arbitrator’s reasons nevertheless indicate that he considered the evidence and submissions of the Appellant regarding the propriety and reasonableness of certain expenses included in the shortfall. I do not find that any of the conclusions reached were unreasonable or unsupported by the evidence.

[90]           I agree with the submissions of the Respondent that the result of the arbitration would have been the same regardless of the Arbitrator’s incorrect interpretation of s. 75.

[91]           Accordingly, I find no reason to set aside the arbitration award and dismiss this aspect of the appeal.

[92]           The Arbitrator awarded interest at the rate prescribed in the Respondent’s bylaw number 1, article 11.5 from April 23, 2012, being three percent over the prime rate compounded monthly.

[93]           Article 11.5 establishes the rate applicable to arrears for common expenses owed to the condominium corporation by unit owners.

[94]           The Arbitrator found that amounts owing under s. 75 should be treated as common expenses in arrears and hence attracts interest at the rate provided for in the bylaws.

[95]           The Appellant’s position is that the declarant was not a party to the contract/bylaws and is not contractually bound by the provisions.

[96]           Further, the Appellant argues that as the declarant is not a party to the contract/ bylaws an award of compound interest would need to be founded in equity and that the limited grounds of equity were inapplicable to the case at bar. As such the Arbitrator was bound by s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C. 43, which prohibits an award of compound interest except in very limited circumstances.

[97]           The Respondent responded by arguing that the Appellant/declarant wrote the bylaws and is therefore bound by them.

[98]           In finding that the Appellant owed interest pursuant to the bylaws, the Arbitrator cited Metropolitan Toronto Condominium Corp. No. 1250 v. Mastercraft Group Inc. (2007), 54 R.P.R. (4th) 260 (Ont. S.C.), rev’d on other grounds, 2009 ONCA 584, 255 O.A.C. 253 (Ont. C.A.) [Metropolitan Toronto].

[99]           The trial judge in Metropolitan Toronto held that there was no “reasonable objection to the plaintiff’s position that since the debt arises from the Declarant’s failure to pay common expenses, the interest rate payable ought to be the rate specified in Bylaw No. 1” (at para 34). The issue of interest was not before the Court of Appeal.

[100]      Section 57 of the Arbitration Act provides that ss. 127 to 130 of the Courts of Justice Act apply to arbitration, with necessary modifications.

[101]      Section 128(4)(g) of the Courts of Justice Act sets out that prejudgment interest shall not be awarded under s. 128(1) “where interest is payable by a right other than under this section.”

[102]       The Supreme Court in Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at paras 41-43, set out the following circumstances in which interest may be awarded other than as specifically stated in s. 128:

[103]      The court in Wentworth Condominium Corp. No. 10-102 v. Mazzon, 1998 CarswellOnt 1373 (Ont. Gen. Div.) [Wentworth] noted that condominium bylaws fell under “interest payable by another right other than that conferred by section 128 and section 129 of the Courts of Justice Act.” (para. 18). In Wentworth the dispute was between a condominium owner and the corporation. In that instance, there was no question that the owner was a party to a contractual agreement to submit to the condominium’s bylaws.

[104]      The Arbitrator’s reasoning accords with the decision of the trial judge in Metropolitan Toronto:  “I see no reason why they should not pay interest at the rate prescribed for in bylaw number 1 which had originally been prepared and declared by 90 George Street.” (para. 42 of the Interim Award, dated September 10, 2013)

[105]      I agree and find that the Arbitrator’s decision was correct.  Interest in the case at bar was awarded pursuant to a right other than as provided for by s. 128 and, as such, the Arbitrator was correct in his decision to award interest as  provided for in the Respondent’s bylaws.

[106]      Therefore, the appeal with respect to the issue of interest is dismissed.

[107]      The Arbitrator awarded costs on a substantial indemnity basis and included in the award costs of the mediation as well as for the arbitration. The award of $90,400.00 inclusive of H.S.T. was slightly more than the sum claimed which was 90 percent of actual fees of $86,493.48 inclusive of H.S.T.

[108]      The Appellant argued that the award not only exceeded the amount claimed but also that the Arbitrator erred in awarding costs completely unrelated to the arbitration, including the costs of mediation, and incorrectly applied the principle for awarding costs on a substantial indemnity basis.

[109]      An Arbitrator’s authority to award costs is found in s. 54 of the Arbitration Act, which states as follows:

[110]      Section 54(5) of the Arbitration Act provides for costs consequences arising from an offer to settle, similar to those set out in Rule 49 of the Rules of Civil Procedure.  It states:

[111]      It is well settled that an award of costs is highly discretionary and entitled to deference on appeal and should only be set aside by an appellate court if there has been an error in principle or if the costs order is plainly wrong (see: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27).

[112]      The Appellant argued that the case of Greenlight Capital, Inc. v. Stronach (2008), 2008 CanLII 34359 (ON SCDC), 91 O.R. (3d) 241 (Div. Ct.) [Greenlight] was an authority for the proposition that an award of costs prior to the commencement of a proceeding is a reversible error.

[113]      A close reading of the decision however, indicates that the court in Greenlight held that an award for costs prior to the Notice of Application was an error principle (at para. 76).

[114]      The Condominium Act requires parties to mediate budget disagreements before undertaking arbitration. As such, I find that the mediation process did not represent an exercise of discretion by the parties prior to commencing arbitration and for that reason costs encompassing the mediation are related to the arbitration process and are proper and appropriate and dismiss the appeal on this issue.

[115]      The final issue argued was the Appellant’s appeal of the decision of the Arbitrator to award costs on a substantial indemnity basis.

[116]      Costs on a substantial indemnity basis are to be awarded in rare and exceptional cases (see: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66 [Davies]).

[117]      The Ontario Court of Appeal in Davies held elevated costs should only be awarded in two circumstances: (i) those involving the operation of an offer to settle under Rule 49.10; and (ii) where there has been reprehensible, scandalous or outrageous conduct. 

[118]      In the reasons for the cost award, the Arbitrator stated that one basis for awarding costs on a substantial indemnity basis was because the declarant “had a statutory obligation to reimburse the Condominium Corporation for the first year’s shortfall, which they refused to do, and they also put forth a claim for set-off which was without merit.”  (para. 8 of the Award as to Costs, Disbursements and Interest dated October 21, 2013)

[119]      I disagree. I find that this rationale for the award of costs on a substantial indemnity basis is incorrect in view of my conclusion that the Condominium Act allows a declarant to challenge the propriety and reasonableness of items included in a condominium corporation’s first-year audited statement.

[120]      However, a secondary rationale for the Arbitrator’s award of costs on a substantial indemnity scale related to the formal offers to settle made by the parties.

[121]      The arbitration was held from June 4-5, 2013, and from August 14-15, 2013.

[122]      The Respondent made two offers to settle that were less than what they were awarded.

[123]      The Respondent’s first offer was made on May 8, 2013 – prior to the commencement of the arbitration; the second was presented on July 15, 2013.

[124]       Section 54(5) of the Arbitration Act is comparable to Rule 49.10 of the Rules of Civil Procedure which expressly provides for a consideration of offers to settle when deciding the appropriate scale of costs to award.

[125]      The Arbitrator was correct to consider the offers to settle when deciding to award costs on a substantial indemnity basis.

[126]      The award of costs on a substantial indemnity basis for the entire arbitration was correct. Both offers were for sums considerably less than awarded and the first offer pre-dated the commencement of the arbitration.

[127]      The appeal is therefore dismissed with respect to this issue.

[128]      In the event that the parties are unable to resolve the issue of costs of the appeal, they may file written submissions within 30 days. Submissions are not to exceed five pages in length.