London Maritime Arbitration

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A. Introduction

21.1 The questions of which party is to pay the costs of the arbitration, and the amount which that party is to pay, are of vital importance to the parties. Unless the parties and the arbitrator take steps to control them, the costs incurred in pursuing an arbitration may become disproportionate to (and possibly even exceed) the sums at stake. Not only does this mean that issues as to costs may be as hard-fought as the substantive issues referred to arbitration, it also means that cost may be a powerful factor in assessing whether to settle a case. 21.2 Under the 1996 Act, the tribunal can exercise control over the costs of the arbitration, as well as award and assess which costs are recoverable. There are steps which can be taken by the parties with a view both to placing a limit on the costs incurred and protecting a party who has reasonably attempted to settle the claims referred to arbitration. 21.3 The approach to costs under the 1996 Act reflects in several respects the approach to the costs of litigation under the Civil Procedure Rules, and authorities addressing costs under the Civil Procedure Rules may be of some assistance when considering the tribunal’s exercise of the power to award costs.1 However, such authorities are persuasive only, and (unless the parties have agreed otherwise) the tribunal enjoys a wide discretion as to costs, with the consequence that challenging a finding or award on costs is extremely difficult. 21.4 The 1996 Act draws a distinction between the incidence and the recoverability of costs. The incidence of costs relates to the identification of which party is to pay for the costs of the arbitration. The recoverability of costs relates to the question of ascertaining the amount which that party is to be required to pay (i.e., what used to be called “taxation”). However,

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although these two aspects of costs are theoretically distinct, similar considerations are likely to be relevant to both, and in practice they may flow into a single, broad inquiry.

B. Meaning of “costs”

21.5 Section 59 of the 1996 Act defines the “costs” of the arbitration as follows:
  • (1) References in this Part to the costs of the arbitration are to –
    • (a) the arbitrators’ fees and expenses;
    • (b) the fees and expenses of any arbitral institution concerned; and
    • (c) the legal or other costs of the parties.
  • (2) Any such reference includes the costs of or incidental to any proceedings to determine the amount of the recoverable costs (see section 63).
21.6 The arbitrators’ fees and expenses (sub-paragraph (a)) are discussed in .2 In the context of London maritime arbitration these are likely to vary considerably, depending upon whether the arbitration has proceeded on documents only, the number of arbitrators in the tribunal, the length of any hearing, and the complexity of the issues raised. It is important to note that the question of the allocation of costs between the parties does not in any way affect the entitlement of the tribunal to recover the entirety of its reasonable fees and expenses from either or both parties (see ). 21.7 The LMAA does not administer arbitrations and therefore does not, itself, charge fees to arbitrating parties.3 Therefore, in most maritime arbitrations sub-paragraph (b) will not apply (though it may occasionally do so in the context of maritime claims which are referred to GAFTA or LCIA arbitration). 21.8 The legal costs of the parties (sub-paragraph (c)) are likely to represent the bulk of the costs of the arbitration. The reference to “other costs” would encompass the costs of obtaining evidence or of investigating the other party’s case, for example, witnesses’ travelling expenses or the costs charged by expert witnesses. The costs incurred by the parties may also encompass costs incurred before arbitral proceedings were commenced, including the cost of securing third party funding or the costs of negotiating and settling an agreement of submission of disputes to arbitration.4 However, if they are to be recoverable such costs must be shown to be referable to the arbitration itself.

In Société Anonyme Pêcheries Oestendaises v Merchants Marine Insurance Co Ltd 5 an action was brought under a marine insurance policy following the sinking of the plaintiff’s trawler. Costs were incurred by the plaintiff before the commencement of proceedings in obtaining evidence from the master and crew of the sunk vessel and also in obtaining expert evidence from consulting engineers and marine surveyors. It was held that such costs would be allowed since they were “in respect of materials ultimately proving of use and service in the action”, and related to “activity as would contribute to the success of the party ultimately”.

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