CIArb EAB Nuts & Bolts Series 2013 Costs, Offers to Settle and Payments-in Tuesday, 18 June 2013 Glenn Haley

Road Map What are “costs”? What is the relevant power / jurisdiction? Types of costs orders Who assesses the costs? Assessment of the Arbitrator’s fees and expenses Offers to settle Payments into court

What are “costs”? Not defined in Arb Ordinance Fees, charges, expenses and remuneration (HC Rules definition) Will include – as between the parties – the Arbitrator’s fees and expenses The assessment of the Arbitrator’s fees and expenses – as between the Arb and parties – is a different issue Sect 76 of Arb Ordinance: unqualified people can represent a party in an arbitration in HK

Power / jurisdiction (1) Sect 74 of the Arbitration Ordinance Some important changes from the regime under the old Ordinance Sect 74(1) to (4): the making of the costs orders Sect 74(5) to (7): the assessment of costs Sect 74(8) and (9): banning “bear own costs” clauses Sect 75: taxation by the court Sect 77: the Arbitrator’s fees and expenses

Power / jurisdiction (2) Sect 74(1) and (2) – main costs orders, made within awards Sect 74(3) and (4) – is a new power, covering interlocutory costs orders Under the old regime, a costs order had to be included within an award to be enforceable Both procedures talk about “costs (including the fees and expenses of the tribunal)”

Power / jurisdiction (3) Has done away with the old distinction between “costs of the reference” and “costs of the arbitral award” Sect 74(2): “to whom and by whom and in what manner the costs are to be paid” Sect 74(2): “having regard to all the relevant circumstances” Sect 74(4): makes it clear that interlocutory costs order can be “forthwith” orders

Power / jurisdiction (4) Also remember to look at the applicable rules that the parties have adopted HKIAC Domestic Arb Rules – in the tribunal’s discretion HKIAC’s old administered arbitration rules recorded the position that “in principle” the loser pays; same UNCITRAL Arb Rules Sect 74(8) and (9) - banning “bear own costs” clauses, which includes one party pays all. Unless agreement reached after the dispute has crystallised

Types of costs orders (1) Who to pay When to pay On what “basis” to pay Large number of variables Must make decision judicially Must take into account “all relevant circumstances”

Types of costs orders (2) Relevant circumstances can include matters such as (i) relevant measures of success, (ii) behaviour during the course of the proceedings, (iii) law and practice of the forum, and (iv) possibly the law and practice of the place of enforcement Bases of costs order: (i) party and party, (ii) common fund, (iii) indemnity How is this affected by Sect 74(7)(a) that adopts the test of reasonableness in assessing costs?

Types of costs orders (3) Spilt costs orders? Tribunal needs to do justice between the parties, but also needs to make the implementation (assessment and enforcement) of the orders efficient and practical Personal view – avoid making “costs reserved” orders Timing – forthwith or in any event?

Who assesses the costs? (1) Under the old regime, the court did the assessment unless the parties agreed otherwise (or the tribunal declined to do so) Under Sect 74(5) and 75, the Arbitrator must do the assessment unless the parties have agreed that the court should do it Who is better placed to do the assessment? The Arbitrator or the court?

Who assesses the costs? (2) It is better for HK as an international arbitration venue to have the new regime, where the tribunal does it, because overseas counsel wouldn’t be able to do a court taxation Note that although the Arbitrator assesses the costs that are recoverable under his costs orders, he does not assess his own costs, in the sense of making the parties unable to challenge his fees and expenses. That was a lacuna before. Now the parties can have the court assess the tribunal’s fees and expenses under Sect 77 in case of dispute. Thus the somewhat curious words in Sect 74(5)

The assessment process (1) In court is called “taxation” of costs Also some rules and cases speak of “tax and settle” These old expressions have been replaced in new Arbitration Ordinance by “assess” Is usually an arcane and cumbersome procedure in a court taxation Luckily, Sect 74(6) frees an Arbitrator of such cumbersome procedures

The assessment process (2) But of course, the Arbitrator still must do the assessment judicially and properly Sect 74(7)(a): “must only allow costs that are reasonable having regard to all the circumstances” Bases on the 2003 Committee Report that reasonableness should be the only test But lawyers love to argue over what is reasonable!

The assessment process (3) Art 31 if the ICC Rules also adopts a reasonableness test. Commentaries on those rules suggest that the main consideration should be the amount in dispute. Although complexity of the dispute and issues also are important factors. So does Art 28 of the LCIA Rules. One well known case where costs limited to local counsel rates not international law firm rates.

Assessment of the Arbitrator’s fees and expenses (1) Tribunal can of course order the reimbursement of tribunal fees and expenses as part of the costs orders But if there is a dispute between the parties and the tribunal as to the tribunal’s fees and expenses, these are dealt with under Sect 77 Also applies if there is a dispute about the fees and expenses of a tribunal expert or assessor

Assessment of the Arbitrator’s fees and expenses (2) Arb can still withhold his award until he is paid Procedure for payment into court and for court to direct the procedure for the fees and expenses to be determined

Offers to settle (1) As noted above, Sect 74(2) expressly says that when deciding what costs orders to make, the tribunal must take into account “all relevant circumstances” Note that although Sect 74(2) uses the word “may”, it is mandatory to take all relevant circumstances into account The relevant circumstances include “if appropriate, that a written offer of settlement … has been made”

Offers to settle (2) Arbitrator has a wide discretion regarding costs But must be exercised judicially, not arbitrarily In HK, the usual guiding rule is that the costs follow the event Types of offers to settle, with different effects Open offers Without prejudice offers

Offers to settle (3) Sealed offers Calderbank offers Two effects of an offer to settle – (i) is an offer to settle, (ii) might or might not have costs effects / protection Costs effect of an effective offer The weight to be given is a matter for the tribunal Should the receiver reasonably have accepted the offer?

Offers to settle (4) In general, if reject but fail to beat an effective written offer, the tribunal should make a costs order by reference to it Might justify higher costs basis Beware the interest calculations. Must compare apples with apples Don’t make the offer inclusive of costs

Offers to settle (5) Reverse Calderbank offers Be aware in international arbitrations of the possible need to explain the effect – and consequences - of a Calderbank offer

Payments into court Practice discontinued under new Arbitration Ordinance HK was one of the few jurisdictions that allowed for payment into court in arbitrations Confusing for international parties Thus the express words in Sect 74(2)

Q&A?