Michael began by explaining there is
very little law surrounding this subject, which is largely left to the
discretion of the arbitrator, which must be exercised judicially.
Under the 1996 Act, the procedures
are required to be fair, cost-effective and appropriate. Sections 59-65 provide the parties with the
opportunity to make an agreement in advance and decide what event would trigger
allocation of costs. We were told that
the 1996 Act provides the parties with autonomy to decide about costs and
cost-capping, and that the parties may seek a judicial review of the
arbitrator’?s fees. It is, of course,
for the arbitrator to determine the recoverable costs of the arbitration. These might fall broadly into three
categories; the arbitrator’s own fees and expenses and the costs involved with
any experts that he might require; second, fees to the arbitration institution,
if any, for their administrative work, including appointment of the arbitrator;
and thirdly, the legal and other costs of the parties themselves.
A cap, if imposed, will only apply to
recoverable costs, which the arbitrator will decide. Although the parties can
agree what will be recoverable, they rarely set this down. The arbitrator must then make an award on
costs as well as on the subject of the dispute. This can be expensive in itself
since, in some circumstances, there may be an award to set down the basis of
how the costs issue will be decided
Michael explained that, in his view,
it is advisable to leave the issue of costs to the end, after the issue of
liability of the matter has been decided.
The arbitrator may publish proposals and invite comments from the
parties about his allocation of costs and we were reminded that he must make a
positive determination, even if it is that costs will lie where they fall. The general principle is that costs will
follow the event unless the arbitrator feels that there is good reason to do
otherwise.
It is for the arbitrator to decide
the event or winner, thus following the event with the costs order. He will need carefully to consider the level
of success achieved by either party in the matter and the reasonableness and
behaviour of the parties. This is
important as the conduct of a party can cause the costs to rise if one party
has caused the other to incur additional costs by excessive correspondence,
requests or other time-consuming and costly activity. If the actions of one party are deemed to have caused the costs
to rise unreasonably, then the arbitrator may award costs accordingly, provided
always that he can show that he was fair.
We were given the example of an arbitration involving several heads of
claim, where the arbitrator awards in favour of one party, but not for all the
heads of claim. There is no correct
answer how to decide the issue of who has substantially won, and it is simply
for the arbitrator, in his best judgement, to set down what is, in his opinion,
fair and proper.
Michael discussed the issue of
“offers of settlement” which are used in some circumstances to fend off awards
of costs. If the award exceeds the
offer by even £1 then the claimant will be deemed to have won; costs can become
very complicated in very long arbitrations where the arbitrator may need to
discount sums in order to fully account for the timescale of the whole
proceedings, so that there is a proper “like for like” comparison.
The relatively new CPR rules were
discussed. The Court should now
consider the conduct of the parties at all stages, even prior to the
proceedings. Pre-action protocols are required;
a party bringing an action must make available to the other side details of the
substance of the case and how he proposes to fight it, in order to give the
other party a fair chance of settling out of Court.
Some time was spent discussing the
issue of cost-capping. If an arbitrator
sets a limit on the recoverable costs, then this will be the limit regardless
of what is actually spent. This can
deprive a deserving party of a justifiable claim for its costs; even if the
arbitrator wishes to award more than the cap, his own actions in putting one in
place will prevent him from doing so.
It was pointed out that a cap can also be a target: A £10,000 cap can be seen as the level to
which lower fees must be elevated in order to benefit fully from the available
allocations and, consequently, unfairness can result.
Michael suggested that arbitrators
might at the outset get the parties to set out in detail their likely costs in
evidence submissions, pleadings and other areas, and tabulate these anticipated
costs in a schedule. The result of this
is that the whole costs issue is set out at the start; and if a greater sum is
claimed, then a good and thorough explanation will be required to support the
claim. This helps to control costs
while still allowing the arbitrator to award more if he feels that a claim is
justified. A further advantage is that
if at any time a party decided to propose a settlement, then the schedule of
anticipated costs would help to determine the allocation of costs to particular
stages of the arbitration, thereby simplifying the award of costs.
Michael rounded off by saying that he
felt it was fair that at all times the parties should have a clear picture of
costs. There followed various questions,
which gave those on the floor the opportunity to raise their own concerns and
some interesting matters were raised.
All those present felt that the talk was useful and a varied and
interesting range of cost-related topics were discussed. I certainly found the
meeting a useful and valuable round-up of the topic and from the level of
interest shown by all those present during the talk, and in the question
session which followed, it appeared to me that those others present also found
the meeting useful
.