Arbitrators’ Power to Award Costs of Ancillary Court Proceedings

Background

In our previous article “Costs of the Arbitration and Costs of Obtaining Interim Measures” (Hong Kong Lawyer, September 2020), one of the issues that we discussed is that there is currently no clear mechanism for an applicant to obtain costs order from the arbitral tribunal for the application for interim measures made in Mainland courts, under Hong Kong law including the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”). This was indeed from our practical experience (which was the first successful interim measure order obtained under the Arrangement), where the Hong Kong arbitral tribunal refused to our application for the costs in applying for the interim measure in Mainland China under the Arrangement.

Recently in “Recovering in Arbitration Costs of Ancillary Court Proceedings Revisited” (Hong Kong Lawyer, April 2021), the authors suggested that the Arbitration Ordinance (Cap. 609) (the “AO”) “ is actually not completely silent on the issue of recovering in arbitration costs of ancillary court proceedings”, and the broad language of sections 74(1) and 74(3) the AO would arguably empower the arbitral tribunal’s power to award costs in relation to costs in ancillary court proceedings.

Commentary

Our opinions diverge.

While the current AO gives the arbitral tribunal wide discretion and flexibility to deal with costs of the arbitration as appropriate, arbitrators should be cautious in exercising its discretion, especially in the context of the Arrangement.

Referring to “International Arbitration Practice Guideline: Drafting Arbitral Awards Part III –Costs” published by the Chartered Institute of Arbitrators (2006), “costs incurred in relation to ancillary judicial proceedings, especially in another jurisdiction (e.g. to obtain security for a claim) are normally excluded from the costs of arbitration, since they are not directly related to the arbitration. However, where the local courts have been seized in support of the arbitration, for example in relation to applications for interim measures, such costs may be recoverable, if they cannot be dealt with by the local court, or the court has referred them to the arbitration tribunal for decision”. (“costs incurred in relation to ancillary judicial proceedings, especially in another jurisdiction (e.g. to obtain security for a claim) are normally excluded from the costs of arbitration, since they are not directly related to the arbitration”)

The same view has also been expressed by Micha Bühler in “Costs in International Arbitration Damages” (Global Arbitration Review, 29 November 2018). In his article, Bühler considered that costs that are not directly related to the arbitration itself but incurred from ancillary proceedings are generally considered to be in lack of a sufficiently close nexus to the arbitration and, hence, not form part of the recoverable costs of the arbitration. In addition, Prof. Jeffrey Waincymer in “Procedure and Evidence in International Arbitration” also commented that “it is not always clear whether a tribunal would seek to make an order over the costs of ancillary court proceedings, such as applications for stays of proceedings, anti-suit injunctions, interim measures, assistance in obtaining evidence or the like”, because technically speaking, these are not costs of an arbitration. (‘Part III: The Award, Chapter 15: Costs in Arbitration’, in Jeffrey Maurice Waincymer, Procedure and Evidence in International Arbitration, (Kluwer Law International 2012), 1255.)

According to Bernard Hanotiau, costs of court-ordered interim measures are generally not accepted as costs of the arbitration. They should be claimed and allocated in the relevant procedures or as damages in appropriate circumstances. (Bernard Hanotiau, ‘The Parties’ Costs of Arbitration’, in Evaluation of Damages in International Arbitration, Dossier of the ICC Institute of World Business Law, ed. Yves Derains & Richard H. Kreindler (Paris: ICC Publishing, 2006), 215).

Therefore, from the perspective of international commercial arbitration, it appears that the costs incurred for the interim measures applications are considered as ancillary proceedings costs and as such, they do not form part of the costs of the arbitration, subject to particular circumstances such as parties’ agreements or arbitration rules adopted.

Going forward, it will be helpful if there is any expansion, amendment, or guideline to the Arrangement that empowers the arbitral tribunal to assess costs of applying interim measures in Mainland China in the award, or at least clarify this “grey area”. With the increasing number of applications under the Arrangement (as of 9 February 2021, 37 application have been processed by HKIAC made to the Mainland Chinese courts for interim measures), we believe that the legal community and practitioners will have deeper understanding of the operation and implementation of the Arrangement.

Legal Director, Hill Dickinson Hong Kong

Edward is qualified as a solicitor in England & Wales as well as a lawyer in P.R. China.  His main area of practice is in commercial and shipping litigation and arbitration. He is extensively experienced in advising and handling international commercial disputes covering areas such as sale of goods/trade and commodities, energy and offshore projects, shareholder and equity-related disputes, and international investment (particularly connected with Belt & Road projects), commercial fraud, worldwide enforcement of judgments and arbitration awards etc.  Edward has been appointed as members of a number of advisory bodies to the Hong Kong government, including Advisory Committee on Promotion of Arbitration, Steering Committee on Mediation, Aviation Development and Three-Runway Advisory Committee, Hong Kong Maritime and Port Board, and an adjudicator of the Registration of Persons Tribunal.  He is also the principal representative of the International Chamber of Shipping (China) Liaison Office.

Trainee Solicitor, Hill Dickinson

Andy is a trainee solicitor assisting in various aspects including litigation, dispute resolution and non-contentious commercial matters.
Andy is admitted as a lawyer of the Supreme Court of New South Wales, Australia (2018). He is also a fellow of the Chartered Institute of Arbitration (2019).

Andy obtained his Bachelor of Laws and Bachelor of Commerce from the University of New South Wales, Australia (2018). He then completed his Master of Laws in Arbitration and dispute resolution (with Distinction) (2019) and the Postgraduate Certificate in Laws at the City University of Hong Kong (2020).