Litigation cost rules and their application to International Arbitrations in England

Edwin Coe construction partner Stuart Nash looks at litigation cost rules and their application to International Arbitrations in England…

On 1 April 2013 the new rules on costs came into force for English litigation on the recommendations made by Lord Justice Jackson.  Changes were made to the Civil Procedure Rules to ensure that all matters are dealt with justly “and at proportionate costs”.  Jackson LJ intended his recommendations to be “a coherent package of interlocking reforms, designed to control costs and promote access to justice” (the “Costs Regime”).

Parties in English litigation are now required to exchange cost estimates before the first case management conference and Costs Management Orders may be obtained from the Court.  If a Costs Management Order is issued by the Court, the winning party may not be able to recover any costs which exceed its estimate from the losing party.

The new Costs Regime will also be relevant to International Arbitrations where the seat of Arbitration is in England or where there is another nexus to England.  Where the law of England applies to an International Arbitration, sections 59 to 65 of the Arbitration Act 1996 (the “Act”) are relevant to the allocation and recoverability of costs in the proceedings.  The arbitral tribunal is also bound, to a certain extent, by the common law.  In particular, it will be bound by any case law that deals with the interpretation of the Act and it may take account of the common law that applies more generally to costs in litigation.

Section 63 of the Act provides that the recoverable costs of an arbitration shall be determined on the basis that there shall be allowed a reasonable amount in respect of all costs reasonably incurred; with any doubt as to whether costs were either reasonably incurred or a reasonable amount being resolved in favour of the paying party.  Section 65 of the Act addresses the power to limit recoverable costs and section 65(a)(i) provides that, unless otherwise agreed by the parties, the tribunal may direct that the recoverable costs of an arbitration or of any part of the arbitral proceedings shall be limited to a specified amount.

In addition to the new Cost Regime and the Arbitration Act, the institutional arbitral rules will also govern the tribunal’s award of costs.

The ICC Rules at Article 37 provide that, in making decisions as to costs, the arbitral tribunal may consider the extent to which each party has conducted the arbitration in an expeditious and cost effective manner.  Further Article 28(4) of the LCIA Rules provides that, unless the parties otherwise agree in writing, the arbitral tribunal will make its orders on both arbitration and legal costs on the general principle that costs should reflect the parties’ relative success and failure in the award or arbitration, except where it appears to the arbitral tribunal that in the particular circumstances this general approach is inappropriate.

Therefore, in International Arbitrations where the law of England applies, the arbitral tribunal may ensue that the arbitration is dealt with proportionately and, when appropriate, the tribunal may order the exchange of cost estimates by the parties to ensure that the arbitration is conducted in a cost effective manner.

If you would like to find out more information on these new rules and their application, please contact Stuart Nash (stuart.nash@edwincoe.com).

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