Costs can be a confusing and often laborious aspect of an arbitration. An established arbitrator recently told me that his costs award in one arbitration was as long as his award on the merits. Given this minefield, costs is an area where practitioners often appreciate training.
The Chartered Institute of Arbitrators (CIArb) delivered a Costs Workshop in Hong Kong at the Hong Kong International Arbitration Centre (HKIAC) 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 lawyers can boast about. Clients want value for money and lawyers don’t want to end up writing off countless hours. Gillie Belshami 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 RFP process to choose counsel on a given case. The challenge facing law firms here is whether to take a hit on profitability to get the work. Where law firms are working on limited information to put the budget together, it is advisable to build a number of assumptions into the budget. Where the law firm is successful in winning the work, repeating the assumptions to the client, even when this proves difficult will help to keep client’s 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 using a project manager at the client end).
In his CIArb Roebuck lecture given in June 2016, Doug Jones AO C.Arb identified ways in which tribunals can manage the expectations of parties 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 Jones went on to discuss in detail some key factors relevant to the allocation of costs. These included: the reasonableness of the costs claimed and any improper or bad faith conduct by the parties. The full lecture is available on www.ciarb.org.
In the second session, Susan Dunn of Harbour Litigation Funding and Peter Rees QCii C.Arb of 39 Essex Chambers delivered a lively dialogue addressing some common misconceptions surrounding third party funding and explaining 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 cases they fund. Susan identified the questions which Harbour ask when reviewing a claim for funding and relevant terms included in the documentation. As well as costs budgeting, questions such as 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 security for costs, specifically in the context of third party funding. The participants considered the implications of certain factual scenarios to 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 ICSID 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 amongst 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 funder has made a assessment on the merits of the case - is this a fair and acceptable inference for the Tribunal to make?
In the last session, Mary Thomsoniii C.Arb, and Dr Fan Yangiv 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, amongst other things, whether a third-party funder could (and should) be subject to a costs award.
i Costs Management – preliminary issues – how to come out winning, Gillie Belsham, Ince & Co
ii Costs in Arbitration, Susan Dunn, Harbour Litigation Funding and Peter Rees QC, C.Arb, 39 Essex Chambers
iii Award and Assessment of Costs, Mary Thomson, C.Arb
iv Costs in Arbitration, Dr Fan Yang, FCIArb