Arbitration – Cost should follow the event

07 Oct Arbitration – Cost should follow the event

It is a general principle of English law that costs should follow the event, meaning that the party that wins the dispute should have their costs paid by the other side. When is it reasonable for an Arbitrator to depart from that principle by reducing the costs that the successful party can claim from the other side?

ProMission represented Toolstation, as Tenant, in a recent case where the arbitrator was asked to consider this point. 

The Principle

Section 61(2) of the Arbitration Act 1996, states:

”Unless the parties otherwise agree, the Tribunal shall award costs on the general principle that costs should follow the event except where is appears to the Tribunal that in the circumstances this is not appropriate in relation to the whole or part of the costs.”

A without prejudice save as to costs offer, a Calderbank offer, allows either side in an arbitration the opportunity of ”putting down a marker”. If they achieve a result which is equal to, or better than, that offer, they will be deemed to have succeeded and, usually, be entitled to have their costs paid by the other side.

The Facts 

The case involved a rent review of a trade counter warehouse in greater London. Following the appointment of an arbitrator on the application of the landlord’s surveyor, ProMission issued a without prejudice save as to cost offer on the Calderbank principles. The facts and evidence were agreed between the parties, but by the time replies had been submitted, it became clear that there was a difference between the landlord and tenant’s experts on an aspect relating to the floor areas of the comparables. This involved the parties’ surveyors in a joint measurement, a supplementary statement of agreed facts, and supplementary submissions.

When the arbitrator’s award was published, it was for an amount approximately £2,000 below the Calderbank offer made by Toolstation. However, the arbitrator had largely accepted the position on floor areas contended by the landlord’s surveyor.

Toolstation duly asked the landlord to pay their costs following the general principle, but this was rejected on the grounds that additional costs had been incurred resolving the floor area issue and the landlord had been successful on that point. The arbitrator was asked to make a further award on costs dealing only with this point as both sides accepted that, otherwise, costs should follow the event.

Precedent

The courts have from time to time been asked to decide in what circumstances it might be appropriate to depart from the general principle and reduce the costs of a party who was successful to reflect aspects of the claim which were either abandoned or rejected by the Court. In Oldcorn v Southern Water Services Limited (2017), the High Court reiterated the principles set out in Fox v Foundation Piling Limited (2011), namely, ”the fact that a claimant has won on some issues and lost on other issues on the way is not normally a reason for depriving the claimant of part of his costs”. A similarly unsuccessful attempt to reduce costs on these grounds was made in Municipio De Mariana BHP Group Plc (2021).

The case law relating to arbitration decisions on costs is very limited, but in the recent case of Pitman and Ors v Hicks, the High Court was considering an application by a landlord for permission to appeal an arbitrator’s award, which directed that the costs of the arbitration relating to a notice to repair should be borne by the landlord notwithstanding that the notice was in part upheld.  In an order dated 21st July 2021 Mr Justice Fancourt refused permission to appeal the costs award.  Whilst the Court rejected the application on the basis that the matter was not a question of law, the Court also noted that it was “far from clear that the arbitrator was wrong in concluding that the defendant had broadly succeeded, and certainly not obviously wrong.”

The Award

The arbitrator, in his award on costs, said, “the fact that the parties disputed the floor areas of the comparable properties in their expert reports did increase the costs of the process and the [issue] was resolved in favour of the [landlord] claimant.  However, I find that on balance this does not justify my departure from the general principle.”  The arbitrator awarded costs, including all the costs for dealing with the additional submissions on costs, against the landlord.

Conclusion

The guidance from the Courts is clear that costs should follow the event, even in situations where a party has not succeeded in all parts of its claim. This principle appears equally applicable to arbitration proceedings.

There is obvious merit in placing a high bar on challenges to the general principle.  If a party makes a compromise offer, which reflects the fact that they do not expect to win every point, should they subsequently be penalised if they ask the tribunal to decide all the points in dispute?  In the context of a rent review arbitration, where the only issues in dispute are usually matters of professional opinion, it is rare that an award is received which favours one party’s submissions unequivocally.  If the arguments a party makes were to become grounds for mitigating costs far more cases would require an additional award on costs, whereas currently it is rare.

There will still be some cases where an arbitrator will decide it is reasonable to depart from the general principle in a rent review arbitration, but I suspect they would have to involve an exceptionally uncooperative party, misconduct, or deceit.

Simon Crust FRICS

7 October 2021