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Recovery only of costs reasonably incurred to be allowed in London arbitration.

In many jurisdictions each party must bear their own costs irrespective of the outcome of the dispute. In England and Wales, when it comes to maritime disputes, the general rule is that the losing party bears the costs reasonably incurred by the successful party. The award of costs is, under proceedings in England and Wales, a discretionary remedy and is not one of right.

In a recent meeting of the London Maritime Arbitrators Association (LMAA) it was agreed that when assessing recoverable costs in arbitration arbitrators should be especially mindful of Section 63(5)(a) of the Arbitration Act 1996, ensuring that they only allow recovery of a reasonable amount in respect of costs reasonably incurred, considering in particular the amount in dispute and the nature of the claim and defences. The section in question reads:

“the recoverable costs of the arbitration shall be determined on the basis that there shall be a reasonable amount in respect of all costs reasonably incurred.”

Following a practice note referred to in the LMAA Newsletter (spring 2005) which concerned a recently perceived tendency for both witness statements and experts’ reports to become “instruments of argument”, rather than mere documents containing genuine evidence, arbitrators should not allow costs that have been incurred unnecessarily. Particular criticism was aimed at experts’ reports in which there was an “endless annexing of documents”, many of which were not relevant to the report but were also documents that were found elsewhere. In other words, there appears to be rather too much icing on the cake!

The fact that the LMAA have revisited the question of costs less than a year since the practice note was published indicates that costs are, at least at present, at the forefront of their minds. Should no heed be taken of the LMAA comments by practitioners then detailed consideration will be given to a more widespread use of the power to cap costs pursuant, generally, to Section 65 of the Arbitration Act 1996 and, in particular, Sub-Section 1, which reads as follows: “unless otherwise agreed by the parties, the Tribunal may direct that the recoverable costs of the arbitration, or any part of the arbitral proceedings, shall be limited to a specified amount.”

In conclusion, the approach being adopted appears to be sensible and in line with the views of those utilising the LMAA’s services but, as ever, it is the implementation that is important.

Gard News 182, May/July 2006

Any comments to this article can be e-mailed to the Gard News Editor.

Gard News is published quarterly by Gard AS, Arendal, Norway.