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

2. 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

3. 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

4. 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

5. 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)”

6. 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

7. 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

8. 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”

9. 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?

10. 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?

11. 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?

12. 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)

13. 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

14. 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!

15. 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.

16. 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

17. 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

18. 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”

19. 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

20. 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?

21. 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

22. 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

23. 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)

24. Q&A?