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COSTS BRIEFING BY JENNIFER JAMES FALCD 13 FEBRUARY 2007

Our speaker was introduced as being the youngest deputy costs judge and only the second woman to be appointed to that role.

As far as members of the CIArb are concerned matters in connection with costs are dependent on whether the Parties are engaged in arbitration or adjudication proceedings. If the former then jurisdiction on costs is governed by the Arbitration Act 1996, if the latter it is s108 of the HGCRA 1996. Adjudicator's of course have no statutory power to award costs unless the contract allows.

There are two methods of assessing costs: Summary Assessment and Detailed Assessment. The former arises out of the Civil procedure Rules and is suitable for fast track matters of modest value and could be used in adjudication with its brief time scale. The Supreme Courts Cost Office has produced a Form N260 prescribed for this procedure and this can be downloaded from the Internet. Summary Assessment should be a swift procedure and some may regard it as "rough justice" because there is no need for a breakdown of costs to be given. Instead a global figure can be awarded after hearing submissions from both sides.

Detailed Assessment requires a more detailed Bill of Costs and for this there is no set format for the Bill of Costs. This procedure is more suited to situations where claims are larger and where there are strong objections to particular costs. Section 59 of AA96 provides for arbitrators to have a very wide discretion as to what are allowable costs and the definitions in the Act are very broad. Although complex cases in the SCCO can involve costs hearings lasting many weeks, Jenny suggested that arbitrators should avoid such procedures and use the format of Form N260 where possible, modified if needs be.

In the case of Joseph Aaron v Michael Shelton [2004] EWCH 1162 (QB) the issue of the conduct of the other Party in the litigation proceedings was not raised and by not doing so the Claimant was precluded from raising these issues at the Detailed Assessment. In other words an arbitrator should not allow the Parties to litigate the matters all over again at the costs hearing. If the paying Party is aggrieved for any reason it is open to them to appeal these matters in later proceedings.

Where a Party wishes to make an offer, the earlier the letter is served the less risk there is of wasted costs, especially if it avoids the need for a Detailed Assessment. In the SCCO, in accordance with the CPR, offers should normally be made within 14 days of receipt of the Notice of Commencement In American arbitrations it is customary for the arbitrator to receive a draft Bill of Costs from either side before the Decision is given, although this practice is not used in this country by the SCCO.

Jenny then went on to discuss the issue of hourly rates. In the case of the SCCO, irrespective of the rates charged by legal teams, the Court will only allow the costs to be recovered at a reasonable market rate and she suggested that this should be followed by arbitrators as well. This means that if a litigant wishes to use a particularly expensive representative who might be over qualified for the case, they may not get back all the costs of the fees incurred.

"The Law Society Gazette" and "Cook On Costs" publishes hourly rates annually, broken down into four grades, A-D. The tables also make allowance for the location of the fee earner and in addition a higher hourly rate is allowable if the litigation is out of the ordinary. This also includes the situation where an able litigator who conducts an exceptionally complex or important case may be awarded a higher rate. This requires a solicitor's hourly rate to be divided into two parts: the "A" Factor, which is the expense rate (the costs of the solicitor sitting in their office, is the "overhead" and the "B" Factor which represents their profit. This latter may vary between 50 and 200%. Although this two stage approach has fallen somewhat out of fashion with the introduction of the CPR, there is case law that shows the Courts will still consider this approach.

CPR Rule 44.4 states two bases for the assessment of costs: the standard and indemnity bases. The Court will not allow costs that are unreasonably incurred or which are of an unreasonable amount in either case. In the latter, costs are awarded on a punitive basis and generally more will be recovered. Jenny suggested that the parallel provision in AA96 was Clause 63(5). Under the CPR costs must also be proportionate, must closely track the real outcome of the litigation and must take into account the conduct of the Parties, for instance whether it was reasonable for a Party to raise a particular allegation in the proceedings.

Proportionality will take into account the amount of money involved, the importance of the case, its complexity and the financial position of each Party. In the case of smaller cases, the costs may be a much larger proportion of the damages recovered, Costs Practice Direction 44.5 provides some guidance. For larger cases proportionality turns on the individual facts of the case and the Court will apply certain sections of the CPR, although it would appear that case law (which Jenny briefly reviewed) has demonstrated that the application of proportionality is far from straightforward.

Although generally costs will follow the event, the Court may make a fractional costs award. So, if a Claimant was 80% successful in their claim and the Defendant 20% the Court might award the Claimant 60 or 70% of his costs. By doing this the Court can consider the merits and demerits of each Party's case and reflect this in the costs award. Jenny suggested that for CIArb members this approach was much better than attempting to separate the costs of the claim and counterclaim and making cross wards, authority for this being within s61 of AA96.

Jenny then gave a few pointers about maximising the recovery of costs. For instance, for a private client, has any estimate of solicitor's fees given to them been exceeded? If so case law suggests that the paying party may not have to pay significantly more than the initial estimate. An unlawful "no win no fee" or "no win reduced fee" agreement may have the effect of disallowing all costs. If a party seeks to recover higher than normal hourly rates, find out why. Copying charges will be allowed at a commercial rate but the rule of thumb is that it should not exceed 2.5% of the net profit costs. In order to recover Counsel's costs their time spent must be recorded on their fee note. If it was reasonable to obtain an expert's report, the costs may be recoverable even if the report was not disclosed. If the client has insisted the report is not used, then the costs may be irrecoverable. Solicitor's travelling and waiting time is not allowable at their full hourly rate. Any complex issues that concern recovery of VAT should be referred to HM Customs and Excise.

Finally, although the Courts try to be consistent it is inevitable that five different judges are likely to give five different costs awards. In the case of an arbitrator is it better for them to make an award on costs rather than have it done by the SCCO because the arbitrator is more likely to have a feel for the appropriate costs, unless the matter of costs is very technical. The alternative is for the arbitrator to appoint a costs assessor, although this in turn will have an effect on the costs of the proceedings.

During the lively discussion which followed, Francis Miller ask a question about the extent to which the CPR rules can override an Act of Parliament, namely: The Arbitration Act 1996 and, in particular, the provisions related to the award of costs by the tribunal [sections 61(2) and 63(3)]. Francis was very concerned that if the speaker was right, then the statements by The Rt Hon Lord Justice Saville [as he was at the time] about the meaning of these provisions were wrong. The speaker, Judge James, offered to investigate the matter further and has very kindly reported back with the following erratum:

"I am indebted to Francis [Miller] for his question on Tuesday evening [13th February]. My interest was piqued and I determined to review CPR part 49 etc. to see exactly what the position was. I must relate that the inclusion of Arbitrations under CPR Part 49 has in fact been revoked and it no longer directly applies. There is reference in Part 62 and Practice Direction thereto, to Arbitrations, but if you care to review it, it does not appear to be costs-centred in any way.

So Francis was right, and I am most grateful to him for flushing this out. Not an enormous amount hinges upon it because of course as I stated on Tuesday, much of the CPR merely codifies what Arbitrators had already been doing for years. It represents "best practice" if you will; it is open to Arbitrators to deviate from it, but its principles are sensible and should certainly be understood, even if they are not followed. As such, all of the detail from Tuesday's talk is still valid and of course everything else, about the hourly rates, fractional costs orders etc. is equally valuable."

The full text of the paper presented by Jennifer James is available on the branch website: www.arbitrate.org.uk.

Report by Murray Armes

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