The costs involved in pursuing or defending a claim in arbitration can be considerable, even where the amount in dispute is relatively low. This practice note sets out the principles governing the allocation and recoverability of costs in arbitration proceedings seated in England.
Where the seat of arbitration is in England, the <span class="news-text_italic-underline">English Arbitration Act 1996</span> (the “<span class="news-text_medium">AA 1996</span>”) will apply to the issue of costs unless the parties have agreed otherwise, for example by adopting of a set of arbitration rules. The AA 1996 contains detailed provisions relating to the costs of arbitration which may be substantied with English common law principles of litigation costs.
Under the AA 1996, the default position is the successful party should be awarded its costs unless the tribunal decides this is inappropriate. This "costs follow the event" approach is commonly used in English litigation, though other jurisdictions take different approaches such as allocating costs proportionately based on the parties' relative success.
The recoverability of costs is determined either by the parties' own agreement or by the tribunal's costs award. In addition to legal fees, recoverable costs can include success fees under conditional fee agreements and costs of third-party funding.
Costs awards can be challenged on limited grounds, such as serious irregularity, though courts generally show deference to the tribunal’s broad discretion in this area. The allocation and recoverability of costs in English-seated arbitrations is a complex and flexible issue, where tribunals have significant latitude to fashion an appropriate cost outcome based on the specifics of each case.
Where the parties have adopted a set of arbitral rules, such as the LCIA Rules, the tribunal will typically have wide discretion in deciding how to allocate costs. The general principle is costs should reflect the parties' relative success, but tribunals can take into account other factors including the parties' conduct.
In summary, the allocation and recoverability of costs in arbitral proceedings seated in England is a nuanced issue where tribunals enjoy considerable flexibility to tailor cost awards to the unique circumstances of each dispute. While the AA 1996 sets out foundational principles, the specifics of each case, including any agreed arbitration rules, will heavily influence the tribunal’s approach to costs.
