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( Source of the document: ICC Digital Library )
Managing Associate in the Helsinki and Stockholm offices of Hannes Snellman.
In Finland, the costs of ancillary proceedings for interim measures brought in a national court are determined in the main proceedings. According to a recent arbitral award, an arbitral tribunal can award such costs, even where the application for interim measures proves unsuccessful, as long as the application was necessary and the party claiming the costs prevails in the main proceedings.
Interim relief, arbitration costs
Opinions are divided on whether a party is entitled to seek compensation in an arbitration for costs incurred in ancillary proceedings for interim measures brought in a national court. While some commentators have ruled out this possibility,1 others have argued that costs arising from ancillary action taken by the successful party in support of the arbitration may potentially qualify as arbitration costs.2 It has been said that the main reason why arbitral tribunals refuse such costs is ‘that they have not traditionally been awarded’.3 It has also been suggested that such costs could be recoverable as damages by way of a substantive claim for costs.4 In some jurisdictions ancillary proceedings are subject to their own costs regime (although costs incurred in defending an action brought abroad in breach of an arbitration agreement may be claimed as damages),5 while other jurisdictions require costs to be recovered in the main proceedings.
In Finland, Chapter 7, Section 10 of the Procedural Code provides that the costs of interim measure proceedings shall be determined and allocated between the parties only in the decision on the merits of the dispute, i.e., where an arbitration is initiated, in the final award. Hence, a party must request the reimbursement of costs incurred in ancillary interim measure proceedings in the arbitration. This leaves the arbitral tribunal with the task of determining how to allocate such costs. The question is thus not whether the arbitral tribunal can allocate such costs, but rather what test it should apply in doing so.
An arbitral tribunal addressed this issue in a final award dated 11 March 2015, in an arbitration between two Finnish parties, A and B, conducted under the Arbitration Rules of the Finland Chamber of Commerce.6 The dispute concerned B’s allegedly unlawful termination of the parties’ cooperation agreement. Prior to commencing arbitration, A sought an injunction from the Finnish state courts prohibiting B from terminating the cooperation agreement. A’s application was dismissed by the first instance court and the court of appeal. A commenced FAI arbitration proceedings against B, requesting, inter alia, that the arbitral tribunal (i) declare B’s termination unlawful and (ii) order B to pay A’s costs and expenses arising out of the injunction proceedings.
The arbitral tribunal ultimately found B’s termination of the cooperation agreement to have been unlawful. The arbitral tribunal held that, under Chapter 7, Section 10 of the Finnish Procedural Code, where so requested by a party, the costs of ancillary interim relief proceedings shall be decided at the same time as the substantive issues in the main proceedings. The arbitral tribunal then added that Section 11 of the same Chapter provides that an applicant who has unnecessarily sought precautionary measures shall be liable to compensate the opposing party for the damage caused by such measures and their enforcement, and to cover the expenses incurred. The arbitral tribunal concluded that the question of which party is liable to pay the costs arising from ancillary proceedings for interim measures depends on which party prevails on the main issue and whether or not the interim measure proceedings were necessary in light of the outcome on the main issue.
The arbitral tribunal also noted that, under Finnish law, the binding effect of court decisions is limited to the operative part of the decision and does not cover its reasoning, and the findings of a court in ancillary proceedings for interim relief are not legally binding on the court or arbitral tribunal that is competent to decide on the main issue. Thus, the findings of a court in ancillary interim measure proceedings are not legally binding on an arbitral tribunal seised of the main issue. Accordingly, the arbitral tribunal concluded that the decisive matter was whether or not the interim measure proceedings initiated by A were necessary in light of the outcome of the arbitration. Finding that they were,7 the arbitral tribunal decided that A’s claims were justified and awarded A the costs it had incurred in the interim measure proceedings.
Under Finnish law there is no doubt as to the arbitral tribunal’s authority to award costs incurred in ancillary proceedings for interim relief brought in the courts. What the recent FAI case clarifies is that the test for recovering such costs in the main proceedings is one of necessity. Provided the application for ancillary interim relief was not unnecessary, and the claiming party prevails in the main proceedings, that party can even recover the costs of an application for ancillary interim relief that was refused. What the award leaves unanswered, however, is how the necessity test should be applied where a party seeks interim relief from both a court and an arbitral tribunal.
See e.g. Bernard Hanotiau, ‘The Parties' Costs of Arbitration’, in Derains & Kreindler (eds), Evaluation of Damages in International Arbitration, Dossier of the ICC Institute of World Business Law (2006), p. 214; Yves Derains & Eric A. Schwartz, Guide to the ICC Rules of Arbitration, 2d ed. (2005), p. 365.
See e.g. Jeffrey Waincymer, Procedure and Evidence in International Arbitration (2012) p. 154; Micha Bühler & Marco Stacher, ‘Costs in International Arbitration’, in Arroyo (ed.), Arbitration in Switzerland: The Practitioner's Guide (2013), p. 1386; Marco Stacher, IV. The Award: Costs (Arts. 38 to 40), in Zuberbühler, Müller & Habegger (eds), Swiss Rules of International Arbitration: Commentary (2005), p. 324.
Christian W. Konrad & Jenny Power, ‘Costs in International Arbitration: A Comparative Overview of Civil and Common Law Doctrines’, Austrian Arbitration Yearbook (2008), p. 415.
Gustav Flecke-Giammarco, ‘The Allocation of Costs by Arbitral Tribunals in International Commercial Arbitration’, in Huerta-Goldman, Romanetti & Stirnimann (eds), WTO Litigation, Investment Arbitration, and Commercial Arbitration (2013), pp. 397–8.
Audley Sheppard, ‘English Arbitration Act 1996’, in Mistelis (ed.), Concise International Arbitration, 2d ed. (2015).
See Finland Arbitration Institute, case report, 3 March 2017, http://arbitration.fi/2017/03/03/fai-award-addressing-recoverability-costs-injunction-proceedings-subsequent-fai-arbitration/. The case has also been discussed in the ITA Arbitration Report and on the Kluwer Arbitration Blog.
B had terminated the agreement without cause and therefore A’s attempt to obtain an injunction to try to prevent unlawful termination was necessary.