“COSTS IN ARBITRATION PROCEEDINGS” (Practical Guides - LLP) By Michael O’Reilly – A BOOK REVIEW

In the Preface to the book, the Author, in referring to the UK Arbitration Act, 1996, says: “Arbitrators are now under a duty to manage arbitrations with cost-effectiveness in mind . . . . . Furthermore, the new Act presumes that the Arbitrator will determine the recoverable Costs”. . . .

Every final award deals with Costs. Costs, at the end of the day, may make up a significant portion of the overall amount in issue. After the substantive matters are dealt with, the liability for Costs is next considered. The quantum (amount) can be left to the parties to agree, failing which, it will be the subject of further submissions and further award.

 This task can be found in some of these sections:

 s.61-(2) of the UK Arbitration Act, 1996 states this:

“Unless the parties otherwise agree, the tribunal shall award Costs on the general principle that Costs should follow the event except where it appears to the tribunal that in the circumstances this is not appropriate in relation to the whole or part of the Costs”

SCMA’s Rule 39 (Costs of Arbitration and Legal Costs) * provides:

39.1 The Tribunal shall specify in the final Award, the Costs of the arbitration, and decide the proportion in which the parties shall bear such Costs.

39.3 The Tribunal has power to order in any Award that all or part of the legal or other Costs of one party shall be paid by another party. The Award shall fix such Costs or direct that the Costs be assessed by the Tribunal if not agreed by the parties.

I find these sections somewhat intimidating and indeed challenging as a lay, commercial Arbitrator. You are faced with (1), what is the “event” refers to in the above section, and (2), where it says, “it appears to the tribunal that in the circumstances this is not appropriate . . .” begs the question under what circumstances can the Arbitrator depart from this general principle. I guess this fear of determining Costs (taxation) is not uncommon. Hence this book. It has been a sort of reference material for us struggling Arbitrators early in our careers, when we were somewhat hesitant to go through this exercise when called upon to do so. This book happened to be our “go-to” first port of call!

The Author sets out to provide a comprehensive guidebook for those studying, teaching or practising the art of arbitration on the subject of “Costs in Arbitration Proceedings”.  It examines the law and practice of Costs determination in clear and concise language. The book touches on both the Costs in the Reference (ie the Lawyers’ fees) and Costs of the Award (ie. the Arbitrators/Tribunal’s fees).

s.65 of AA, 96 interestingly gives rise to the Tribunal’s power to limit the recoverable Costs of the arbitration to a specified amount, unless the parties agree otherwise. This power, if properly used, would enable the Tribunal to control unnecessary expenses. Otherwise, Costs would be awarded on the basis that they are “reasonable amount, reasonably incurred”.

Under section (61.2) Costs are to be awarded on the principle that “Costs should follow the event”. The book defines what this “Event” is all about. This is dealt with at page 28. There is also the Arbitrator’s power to depart from this general principle. At page 37 the Authors discusses how this discretion is exercised by the Arbitrator with proper justification without misdirecting himself. **

The book also deals with Costs in Counterclaims. This is more a taxation issue. In determining the parties’ Costs (taxation), the question which the Arbitrator asks himself is: which cost relates to successful Counterclaim and which relates to the Defence which has failed. Issues can arise if the claim is a Defence/set-off but disguised as a Counterclaim. In any event, if the Counterclaim is an independent action and both parties succeeded in the Claim and Counterclaim, is there not a cross-order for costs? Pages 31 to 35 make for interesting reading of a succinct account of this area of the law.

The book also deals with a “Calderbank” offer (named after the case Calderbank v. Calderbank, 1976)(Interim Award on Quantum and Liability, Costs to be decided in the Final Award). It allows the Arbitrator to be addressed by the parties with arguments before a Final Award dealing with Costs award is given.

The book is intended to be empowering, equipping one with the skills necessary for the task. If you're intimidated when faced with settling Costs for the parties or find the task challenging, then his book should give you confidence. It takes your hands and walk with you through nine (9) chapters, each on a different sub-topic on Costs, including chapters on The Arbitrator’s Fees and Expenses, The Award as to liability for Costs, Determining the Recoverable Costs of the Arbitration, Security for Costs, and more . . . The Author’s treatment of the various aspects on Costs is aptly supported by case law and authorities throughout. It's an invaluable guide to have on the shelf and we are sure it will not gather dust.

The book masterfully compresses the time required for acquiring the knowledge and skills into one easily accessible, readable volume. It also has a very helpful Appendix featuring some specimen arbitration documents such as -

 A.1 Costs order in respect of preliminary matters

A.2 Directions limiting the recoverable Costs

A.3 Direction following an application for security for cost

A.4 Award on Costs

A.5 Direction as to the determination of the recoverable Costs

A.6 Award as to recoverable Costs

A.7 Offers of settlement

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The Author can be described as the doyen of English Arbitrators. He has held the post of Legal Adviser at the Chartered Institute of Arbitrators. This definitive work is the fruit of his vast knowledge and experience.

Note:

The UK Law Commission has issued a 2nd Consultation paper to canvass ideas and comments by 22 May 2023, on the proposed reform to AA, 96. With these changes to take place, it's hoped that a new, revised edition of “Costs in Arbitration Proceedings” can be made available in the near future in the light of the impending new Act in sofar as it relates to Costs.

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*   Singapore Chamber of Maritime Arbitration, (SCMA Arbitration Rules, Fourth Edition, 01 JANUARY 2022)

** The Maria [1993] 2 Lloyd’s Rep 168 per Sir Thomas Bingham M.R. at 173