An overview of costs in arbitration

The Chartered Institute of Arbitrators (CIArb) delivered a Costs Workshop at the Hong Kong International Arbitration Centre on 28 March 2017 focusing on costs budgeting and third-party funding. These two areas are rapidly gaining recognition in the industry and practitioners need to equip themselves with the necessary knowledge and skills to meet the competition.

The day was structured into three sessions. For each session, participants heard from the experts on the issue and then split into smaller groups to work on costs-related problems, based around a case scenario.

The first session looked at effective costs budgeting. Clients are increasingly seeking costs budgets from their lawyers. Being able to produce realistic budgets that are win-win for clients and lawyers is a skill few practitioners can boast about. Clients want value for money and lawyers don’t want to end up writing off countless hours.

Gillie Belsham of Ince and Co shared project management techniques to ensure good budget management with clients. Critically, her advice was to get the client to ‘buy in’ to the budget early on and communicate with the client throughout the process. Using strategies such as tying costs to milestones in the arbitration helps to build a budget.

Increasingly, in Asia, clients are asking for a budget as part of the request for proposal process to choose counsel on a given case. The challenge facing firms here is whether to take a hit on profitability to get the work. Where firms are working on limited information to put the budget together, it is advisable to build in a number of assumptions. Where the firm is successful in winning the work, repeating the assumptions to the client, even when this proves difficult, will help to keep their expectations realistic.

Working in a very low-cost environment does mean that lawyers need to look closely at the traditional models of resourcing matters and how the resource model can be changed (e.g. the use of administrative assistants in law firms or a project manager at the client end).

In his CIArb Roebuck lecture given in June 2016, Doug Jones AO CArb identified ways in which tribunals can manage parties’ expectations in relation to costs at an early stage in the proceedings. Tribunals can

work with parties to foster an understanding of how the discretion as to costs will be exercised, and thereby create a real impetus for parties and their counsel to make efficient choices in the conduct of their cases.

Doug went on to discuss in detail some key factors relevant to the allocation of costs, including the reasonableness of the costs claimed and any improper or bad faith conduct by the parties.

In the second session, Susan Dunn of Harbour Litigation Funding and Peter Rees QC CArb of 39 Essex Chambers addressed some common misconceptions surrounding third-party funding and explained the structure. This tied in neatly with the first session since Harbour works carefully with lawyers to ensure the costs budget is realistic and achievable on the cases it funds.

Susan identified the questions which Harbour asks when reviewing a claim for funding and the relevant terms included in the documentation. As well as costs budgeting, questions about whether the counterparty is good for the money, the value of the claim, and the legal merits all play a key role in deciding whether to fund a claim.

This session also looked at the implications of certain factual scenarios for an arbitral tribunal’s decision as to whether to grant security for costs. For example, should the fact that a funder has agreed to cover adverse costs impact a tribunal’s decision when assessing the application for security for costs? Many participants referred to the International Centre for Settlement of Investment Disputes case of RSM Production Corporation v St Lucia, which considered in what circumstances an ICSID tribunal might grant security for costs and the relevance of third-party funders in this determination.

Participants also gave some thought to the disclosure obligations on a party who has secured a third-party funder and what powers a tribunal might have in relation to such disclosure. Further, there was acknowledgement among the workshop groups that it may be probative for the tribunal to know that a party has been funded since there is a possible inference that a funder has made an assessment on the merits of the case – is this a fair and acceptable inference for the tribunal to make?

In the last session, Mary Thomson CArb and Dr Fan Yang FCIArb led the participants through the award and assessment of costs, looking in particular at the Hong Kong legislation. This was followed by a workshop looking at costs allocation in the context of the case scenario. In the context of third-party funding, participants discussed, among other things, whether a funder could (and should) be subject to a costs award.

Camilla Godman is director of CIArb’s Asia Pacific office

@CIArb www.ciarb.org