Costs in Arbitration Anthony Hussey

2 LIABILITY FOR COSTS –Section 30 of the 1954 Act: The parties could not agree on how costs were to be paid until after the dispute had arisen. –Section 21(1) of the 2010 Act: “ The parties to an arbitration agreement may make such provision as to costs of the arbitration as they see fit”

3 –September 2011 amendment to Public Works form of tender: “We also agree that should a dispute arise under any contract formed by acceptance of this Tender that is referred to arbitration, to the extent permitted by law, under the Arbitration Act 2010 and a sealed offer has not been made, or where a sealed offer has been made and the contractor’s award is greater than the sealed offer, then each party will bear their own costs in relation to the arbitration proceedings. If an award is equal to or less than the sealed offer the contractor is liable for the costs of both parties in relation to the arbitration proceedings”

4 QUANTUM OF COSTS The default position under Section 29 of the 1954 Act was that unless the parties agreed otherwise, the costs would be taxed by the Taxing Master of the High Court. The default position under Section 21(4) of the 2010 Act is that unless one or other party requests the arbitrator to refer the costs to the Taxing Master for taxation within 21 days of his award, the arbitrator must ascertain the amount of costs payable under his order for costs.

5 Irish Awards Set Aside on Costs include:- Vogelaar v O'Callaghan [1998] IESC 9 S&R Motors (Donegal) Ltd v Moohan and Another [2008] IEHC 383

6 ISSUES OF LIABILITY Arbitrator has discretion, but discretion must be exercised judicially. The primary rule is that costs should follow the event i.e. the successful party should be awarded his costs. Arbitrator may depart from that principle, but at his peril. “The usual order (in arbitration and litigation) is that costs follow the event. If an arbitrator is making a different or unusual Order for Costs a reasoned Award on costs is necessary”. (Ercus Stewart: Arbitration Commentary and Sources). “As it is well established, the Courts have a discretion to depart from the general principle according to which the costs follow the event where there are special or exceptional circumstances in a particular case”. (Emphases added) – Supreme Court, O’Keeffe v Hickey & Others 2009 IESC 39.

7 THE SUCCESSFUL PARTY Ascertaining the successful party can be difficult where: a)There are preliminary issues; b)A party succeeds but only recovers a small fraction of the amount claimed; c)A party is successful on some heads of claim but unsuccessful on other quite separate heads of claim;

8 Recent Shift in Judicial Thinking Position remains that the overriding principle is that costs follow the event. However: “……at least in complex cases………it seems to me to be incumbent on the Court to attempt to do justice to the parties by fashioning where appropriate, orders of costs which do more than simply award costs to the winning side”. Clarke J, Veolia Water UK Plc v Fingal County Council 2006 IEHC 240 “Where the matter before the Court involved oral evidence and where the evidence of certain witnesses was directed solely towards an issue upon which the party who was, in the overall sense, successful, failed, then it seems to me that, ordinarily, the Court should disallow any costs attributable to such witnesses and, indeed, should provide, by way of set off, for the recovery by the unsuccessful party of the costs attributable to any witnesses which it was forced to call in respect of the same issue. A similar approach should apply to any discrete item of expenditure incurred solely in respect of an issue upon which the otherwise successful party failed”.

9 BANANA SKIN ISSUES Calderbank offers (a)They create a benchmark (see Michael O’Reilly on Costs in Arbitration Proceedings, 2 nd Edition, Page 99) (b)Should they be kept open for acceptance throughout the proceedings? Counterclaims (a)A separate award for costs of the counterclaim must be made; (b)A simple order awarding the claimant the costs of the claim and the respondent the costs of the counterclaim may be unfair;

10 ISSUES OF QUANTUM Rules of Court do not apply; Arbitrator must nonetheless act judicially; Bases for calculation – should the arbitrator follow a commercial basis or seek to follow the principles applied by the Taxing Master? In either event, the successful party will usually only recover costs which were reasonable and necessary on a party and party basis; Application of hourly rates (Cafolla v Kilkenny [2010] IEHC 248 Unreported, High Court, Ryan J., 5 February 2011)