Costs of arbitration / Article 20(1) and (2) of the ICC Rules / Discretionary power of the arbitrator to allocate costs, yes / Normal legal costs do not include compensation for time spent by the Claimant's personnel involved in the preparation of its case / Normal legal costs include however a party's out-of-pocket expenses for transportation, housing or communicating with its witnesses / The fact that a party refuses to sign a rider to the Terms of Reference in a first arbitration between the same parties, or to consolidate both arbitrations, where both refusal are reasonable and not intended to harm or delay the other party, is not sufficient basis for obtaining legal costs / Absence of abuse of process in relation to the scheduling of the hearings, which may give right to allocation of legal costs

'Which party is entitled to the costs of the present arbitration?

Should Claimant bear the costs of the present arbitration, including attorney's fees, in whole or in part even if its claims on the merits should be dismissed, given Defendant's refusal to sign a rider to the Terms of Reference for the First Arbitration which would have allowed such claims to be disposed of in that arbitration?

The questions are put together in order to determine to what extent, if any, the answer to the second question should influence the answer to the first. Under Article 20(1) of the ICC Rules the arbitrator is required to fix the costs of the arbitration and decide which of the parties shall bear the costs or in what proportion the costs shall be borne by the parties. The arbitrator therefore has complete discretion to allocate the costs.

As was the case in my first award, I have decided not to closely scrutinize the attorneys' fees and related disbursements claimed by the parties, since although they are substantial, neither party has seen fit to challenge them and they are of comparable magnitude. Claimant has claimed compensation for the time of its personnel involved in the preparation of its case. This claim does not in my view form part of the costs of the arbitration, in the sense of being part of Claimant's "normal legal costs", contemplated in Article 20(2) of the ICC Rules. It is really a separate head of damages claimed by Claimant and must be rejected together with its other damage claims. Assuming, however, that Claimant had proven that it was entitled to damages as a result of the breaches complained of in this arbitration, I do not consider that the twenty-three man-days claimed by it for its four employees involved in preparation of the case should be compensated. The per diem sum claimed for each employee, whether for salary alone or salary plus overhead, does not represent a special cost incurred by it for purposes of the arbitration but is part of its normal operating expenses. It is for the same reason that such amounts, cannot in my opinion, form party of its legal costs. Claimant's out-of-pocket expenses incurred for transportation, housing or communicating with its witnesses would on the other hand likely form part of such costs.

Because Defendant has won this arbitration and Claimant has lost, the reasonable conclusion to reach would be to award Defendant its full costs, unless there were special considerations to mitigate against doing so, such as the unreasonableness of its costs or some abuse of procedure on its part. Defendant's costs appear to be consistent with the complexity, scope and duration of the pleadings and the aggregate amount at stake. As I have already stated, the parties' respective legal bills also do not appear to be significantly different in magnitude, so that one party could not easily claim that the other's legal costs had been inflated.

Of greater interest is the question of Defendant's comportment in the First Arbitration and in this one. Did Defendant, as Claimant has contended, cause it unnecessary legal costs either by an abuse of the ICC Rules or by improper adversarial conduct in general? I do not believe it did. Claimant's two complaints in this regard are firstly that Defendant unnecessarily and without justification refused to sign a rider to the Terms of Reference in the First Arbitration, and after the present arbitration commenced, to consolidate it with the first as Claimant requested. Its second complaint is that Defendant, having requested that hearings take place on . . . abruptly requested that they be postponed, and then withdrew its earlier request for hearings rather than agree to reschedule hearings on dates proximate to those originally scheduled. Signing the rider or agreeing to the consolidation would have, Claimant contends, allowed all issues in dispute between the parties to be disposed of in one arbitration, with attendant saving of costs. Agreeing to hold hearings reasonably soon after the first scheduled hearings were cancelled would have saved Claimant needless time and cost in preparing for hearings that never took place.

Dealing with the first complaint, I consider that Defendant was perfectly within its rights as a litigant seeking early redress of a contractual wrong to refuse to delay the hearings in the First Arbitration in order to accommodate arbitration of the new breaches first complained of by Claimant in its Memorandum of Law of March 31, 1988. Defendant refused to sign the rider on April 21, 1988, six weeks before the hearings were scheduled to take place. It is unreasonable to expect that the parties could have adequately developed their pleadings and their proof relating to the additional breaches invoked by Claimant in sufficient time for the hearings. Even making allowances for some degree of delay and inefficiency in the arbitral process, it took from February 20, 1989, when the Terms of Reference in this arbitration became operative, until July 20, 1990 when the Final Summations were filed by the parties, to canvass the merits of the same claims.

The same reasons apply with equal strength to Defendant's refusal to consolidate this arbitration with the First Arbitration when the request to do so was made by Claimant in July 1988. By this time Claimant had expanded the remedies sought by it in consequence of the Paragraph 5.3 and good faith breaches to include termination of the Contract and damages flowing from that termination of equal magnitude to those it claimed in the First Arbitration. The issues therefore became even more complicated and the stakes greater. In these circumstances it was reasonable for Defendant to stand its ground and maintain the momentum of its case by avoiding its becoming entangled in questions of law and fact which required different proof and elucidation. Claimant, it should also be noted, had been concerned and indignant about Defendant's holdback of its entire claim for unpaid invoices. Consolidation of the two arbitrations would in all probability have caused it to wait even longer for an award which confirmed its entitlement to payment of most of its invoices.

Defendant was therefore not only within its rights under the ICC Rules to refuse signature of a rider and consolidation of the two arbitrations, but to the extent that the question is relevant to the allocation of costs, both refusals were reasonable and not made with intent to harm or delay Claimant.

As for Claimant's second complaint concerning Defendant's alleged abuse of process in relation to the scheduling of the hearings, I find that Defendant was within its rights under the ICC Rules to request hearings in the first place, despite my own and Claimant's indication that we did not require them. Article 15(1) requires the arbitrator to conduct hearings at the request of one of the parties. Defendant's counsel indicated that its request for hearings was motivated by a desire that the primary witnesses be heard from directly and that counsel and the arbitrator be given the opportunity to ask them questions on the spot. Again, to the extent that doing so is even relevant considering its entitlement to hearings under the Rules, Defendant did nothing wrong by defending substantial claims as it saw fit by requesting the hearings.

Defendant's first request for the change of scheduling of the hearings was made seven weeks before they were scheduled to begin on January 31 . . . The reason given ([Mr. X, Senior Vice-President for Sales of Defendant Company]'s vacation plans, which he had forgotten about) was not untoward and Claimant did not object. The hearings were rescheduled for February 20 and 21 . . ., but eight days before Defendant again requested, and was granted, a postponement, this time because of the world-wide marketing crisis affecting Product RZ (Defendant's principal product). Mr. X, who was Product RZ's chief marketing officer in North America, found it impossible to attend. I believe that Defendant's request for the postponement was not intentionally dilatory, but was on all the evidence motivated by an unforeseen business problem of unusual difficulty. Claimant's subsequent agreement to rescheduled hearing dates of March 13 and 14 was given reluctantly because Mr. X was supposed to be attending a trade show. Rather than change Mr. X's schedule and because counsel and myself could not agree upon other dates in March and April and Claimant's counsel objected to hearings in May as being too late, Defendant withdrew its request for hearings altogether. Here again, I do not think that Defendant's behaviour was abusive, but was prompted by a desire to reconcile its own commercial agenda with Claimant's objection to the hearings taking place some three months after they were originally to occur and at a time which was also highly inconvenient to Claimant's counsel because of the relocation of their offices.

Claimant has not established to what degree, if any, it expended needless time and money in preparing for hearings that did not take place. That they did not take place is not imputable to any bad faith or unreasonable conduct of Defendant, and in any case, in my view preparation time comparable to that necessary for hearings would likely have been required to analyse, organize and present witnesses' affidavits in the manner both parties did.

For all of these reasons, I see no reason why Defendant should not have its full costs. I do not agree, however, that all of the legal fees of $ 84,880 claimed by Defendant are properly chargeable to this arbitration. Defendant's counsel did not keep separate time records for the First Arbitration and the present one. The result is that for a few months when both arbitrations were in progress, Defendant claimed legal fees incurred for purposes of one arbitration in the other . . .

I do not believe that Defendant should recover any fees in this arbitration which it already claimed and in part recovered in the First Arbitration, nor do I believe that Defendant should recover in the present arbitration any fees incurred by it in the first where any doubt exists as to for which of the two arbitrations fees were incurred in November 1988. I have assumed from my perception of the state of the present arbitration at that time, that such fees were incurred in the First Arbitration.'