Costs of arbitration / Costs on issues of liability and quantum treated separately / Fees of law firm / Inappropriateness of a claim for both an instruction fee and a fee for time spent

'In view of the fact that the arbitration was effectively divided into (a) liability and (b) quantum, and that the Claimant, while successful on the issues of liability, failed on its principal claims for damages, for loss of profit and reduction in capital value, and in view of the fact that the time spent in relation to the issue of liability was somewhat greater, the parties were agreeable to my proposal that the costs of the arbitration, and of my two Awards, should be borne as to 2/3rds by the Defendant and as to 1/3rd by the Claimant.

As for the costs of the parties, it was conceded on the part of the Defendant that the Defendant should pay the Claimant's costs of and relating to the issues on liability.

The real issue between the parties arose in relation to the parties' costs of and relating to the issues of quantum. Mr. X, on behalf of the Claimant submitted that, as a general rule, in an arbitration in England, costs "follow the event". He conceded that, as the Claimant had effectively lost on its principal claims for damages, which occupied most of the evidence, both factual and expert, written and oral, as well as the argument, in relation to the second part of the arbitration, it would not be appropriate for the Defendant to pay the Claimant's costs in relation to quantum. He suggested that it would be appropriate for there to be no order as to costs, so that each party would bear its own. Mr. Y, for the Defendant, submitted that there was no reason why the Claimant should not pay the Defendant's costs in relation to the issues of quantum, since the Claimant lost on the main point, and indeed, if one takes account of the claims and counterclaims in the Arbitration, the overall balance is in the Defendant's favour.

It seems to me that Mr. X's argument is rather dangerous. As the amount awarded in respect of the counterclaims exceeds the amount awarded in respect of the claim, if costs were awarded on a simple basis that they should follow the event, then the Claimant would have to pay the whole of the Defendant's costs. But I think it right to treat of liability and quantum in this arbitration separately, and for that reason have awarded the costs on the issues of liability to the Claimant.

This being the case, I should normally have awarded the costs on quantum to the Defendant. But I was persuaded that, although the Claimant lost on the main point, of general damages, and did so principally because I preferred the evidence of the Defendant's expert witnesses, nevertheless it was not unreasonable for the Claimant and its witnesses to rely, at least as the starting point for the assessment of damages, on the figures for the "[name of project]", which Defendants themselves had put forward in . . . and maintained at all times up to the time the Agreement was signed . . . Earlier in my Award, I expressed reluctance at the conclusion which I felt bound to reach. In the exercise of my discretion, it seems to me appropriate for the Claimant to pay only 75% of the Defendant's costs of and relating to the issues of quantum.

As to the sums claimed by the parties in respect of their costs, the Defendant's solicitors submitted a detailed Bill of Costs in relation to the issues of quantum, in the sum of £105,695. This sum was eventually agreed on behalf of the Claimant as being reasonable, and accordingly the Claimant shall pay to the Defendant 75% of this sum £79,271.

In relation to the sums claimed by the Claimant in respect of the issues of liability, . . . the main remaining issue concerned the fees of [law firm B] who claimed an "instruction fee" of £75,853 as well as fees for time spent of £22,566.

After hearing argument from solicitors on behalf of the parties, and in the exercise of my discretion, I have decided to disallow the instruction fee in full, although I allow the fees for time spent. I do so because (i) it seems to me that it is inappropriate to claim both an instruction fee, which is calculated according to a published scale which depends upon the value of the claim, as well as a fee for time spent; (ii) in any event, as I have concluded, the Claimant's claim only had a real value of . . . plus interest, rather than the much larger sum upon which the scale fee was based, and a negative net value when one takes account of the Defendant's counterclaim; and (iii) since [country of law firm A] solicitors and leading counsel, as well as [country of law firm B] junior counsel were instructed, it cannot be said that [law firm B] effectively ran the case.'