E-briefing: Issues on Costs in Arbitration-related Court Proceedings

Important developments and continuing conversations on costs in arbitration-related court proceedings in Singapore that will impact the Corporate Counsel's management of costs in future arbitration-related disputes.

1. The SAL Law Reform Committee ("Committee") published a report in February 2019 relating to certain costs issues in arbitration-related court proceedings.

2 COSTS ISSUES

2. The report raised 2 main costs issues encountered by parties to an arbitration:

(I) Jurisdictional cases: The Court's Uncertain Approach in Determining Costs Quantum ("1st Issue")

• Overview: In Singapore, if a party to arbitration challenges the tribunal's jurisdiction and fails in the tribunal's preliminary determination, the party can appeal the tribunal's decision to the court (s 10 of the IAA, s 21A of the AA). If the appeal succeeds, the Singapore court can make an order relating to the costs of the arbitral proceedings, given that the tribunal lacks jurisdiction to make a costs award. However, the court has no guidance on how to award costs and the quantum of a costs order.
• Implications: While the court has the power to summarily order, assess and/or tax costs, the court faces practical difficulties in doing so in a consistent manner:
  • Legal costs incurred in international arbitrations may be influenced by different legal traditions, practices and expectations globally. This diversity presents the court with costs which differ significantly in nature and/or quantum.
  • No precedents of costs awards from other arbitrations are readily available as such awards are unreported and confidential.
  • Sometimes, the tribunal may have already assessed the costs, but the court is required to conduct a fresh assessment, thus disregarding the tribunal's expert view. 

(II) Setting Aside of Award cases: The Court's Lack of Power to Award Costs ("2nd Issue")

• Overview: If a party applies to court to set aside a tribunal's award and succeeds, the Singapore court currently has no power to make an order relating to the costs of the arbitral proceedings (s 24 IAA / Art 34(2) Model Law, s 48 AA). This becomes a problem as the tribunal has also, by virtue of the successful annulment of its award, been rendered unable to make an award on costs. 
• Implications: Parties who bring a proper jurisdictional challenge are left without a way to recover their costs.

PROPOSED REFORMS

3. In light of these issues, the Committee proposed several reforms.

(I) In respect of the 1st Issue, the Committee suggests the following:

• Costs Schedules: Before the court makes a costs order, parties should each be required to file costs schedules setting out the costs of the arbitration. This forces parties to commit to their positions on costs and prevents parties from inflating their costs after the event. The court will then be well-placed to review the breakdown of parties' costs and benchmark each party's costs against the other's as a useful reference point.
• Costs Assessors: In complex cases, the court should be allowed to appoint a costs assessor or urge parties to appoint one at their own expense. The assessor will assist the court in concluding on the appropriate level of costs in a fair manner. An example of an appropriate assessor can be the SIAC Registrar, since SIAC already offers the service of having costs assessed at transparent and clearly stipulated scaled fees.
• Tribunal to Determine Costs: When making its determination on jurisdiction, the tribunal should pronounce on the reasonableness of costs incurred up to the stage of the jurisdictional challenge. This will assist the court in deciding its costs award if the tribunal is ultimately found to lack jurisdiction.

(II) In respect of the 2nd Issue, the Committee suggests the following:

• Empowerment of the Court: The court should be allowed to make costs orders for arbitral proceedings. Such court orders may modify or replace costs awards already made by the tribunal.
• Guidelines for determining the Appropriate Costs Order: The same reforms proposed in relation to the 1st Issue should be similarly adopted and implemented to overcome the court's difficulties in deciding the appropriate costs order.

PUBLIC CONSULTATION ON INTERNATIONAL ARBITRATION ACT

4. Since the publication of the Committee's report, the Ministry of Law ("Ministry") launched a public consultation from June to August 2019 as part of the Ministry's periodic review of Singapore's international arbitration regime legislative framework.

5. The Ministry recognised the legal profession's feedback on Singapore's international arbitration regime and highlighted various amendments and proposals that they may be implementing to enhance the same. During the public consultation period, the Ministry invited the public to provide their views and feedback on these contemplated amendments and proposals.

6. In particular, the Ministry noted and sought the public's views on the Committee's proposal in relation to the 2nd Issue, i.e. to introduce legislative amendments to:

• empower the Court to order costs following a successful application under s 24 IAA or Art 34(2) Model Law to set aside an award; and
• apply a corresponding amendment to the Arbitration Act for domestic arbitrations.

7. The public consultation exercise has since concluded. The Ministry will be reviewing the submitted responses, including responses on the Committee's proposal on the 2nd Issue, with the aim of further strengthening Singapore’s international arbitration framework to support the needs of commercial users. This will culminate in the finalisation of the draft International Arbitration Act Bill prepared by the Ministry.

SOME POTENTIAL CONCERNS

8. The Committee's proposed reforms on the 2 highlighted costs issues certainly pave the way for further enhancement of the current means and practices of obtaining and determining costs. Arbitration institutions such as SIAC and CiArb have expressed favourable views on various proposed reforms.

9. Nonetheless, a few concerns remain to be addressed:

• The proposed reforms are silent on when parties' costs schedules should be submitted to the court. If the costs schedules are required to be filed during the early stages of a party's appeal or application to the court, the costs schedules may end up being an inaccurate estimation of the parties' costs. During the course of the appeal or application, parties may decide to commence various tactical applications even after the costs schedules have been filed. It is inherently difficult to foresee such tactical applications and satisfactorily account for the costs incurred therefrom. The result is that the previously prepared costs schedules become an arbitrary and unreliable guide for the court in making appropriate costs orders. 
• Further, if the costs schedules are filed during the early stages of a party's appeal or application to the court, parties who intend to commence other interim applications may be unduly prejudiced. This is especially the case since such parties would have to preliminarily disclose to the court (and in turn, their opposing parties) in their costs schedules their intended interim applications. Doing so would alert their opposing parties of their case strategies, thereby placing them in an unfavourable position. Parties who prefer to keep their next steps confidential would ultimately omit from their costs schedules some of the costs that they reasonably foresee would be incurred, for the sake of safeguarding their case strategies. This may even inevitably be done at the expense of the parties' own costs. The result is that the costs schedules would not be a fair and honest estimation of parties' costs. Instead, they would be useless to the court in determining the appropriate costs quantum.
• Also, the courts / costs assessors (if engaged) will face difficulty in deciding on costs if the tribunal's pronouncement (on the reasonableness of costs incurred up to the stage of the jurisdictional challenge) differs significantly from the parties' respective positions on costs. It remains unclear whether the courts will view the tribunal's pronouncement with more authority and credibility as compared to the parties' positions.  

10. To deal with the above potential concerns, we suggest that the proposed reforms may be further finetuned. In particular:

• Parties' costs schedules can be produced and submitted at a time closer to the date of the courts' final decision on costs. This way, parties need not deliberately distort their costs estimations or fret about locking themselves in a position that they cannot maintain as the matter develops and parties' situations / strategies change.
• Instead of requiring parties to specify the exact costs quantum they intend to claim, costs schedules can focus on parties' submissions of the specific practices and principles that they wish to apply to their computation of costs. In doing so, parties retain reasonable flexibility in putting a number to their costs only after the costs have actually crystallised. In addition, the courts will benefit from narrowing down and deriving for the parties principled approaches of determining costs. These principled approaches can then be relied on and implemented when it is time for the issue of quantum to be addressed.

CONCLUSION

11. Reforms to overcome the challenges encountered regarding costs in arbitration-related court proceedings have been a long time coming. The interest in and efforts taken in a bid to minimise such costs issues and obstacles are promising, especially with the timely public consultation on the International Arbitration Act that had recently concluded. With increasing focus and collaboration on enhancing Singapore's arbitration regime, and sufficient calibration and refinement of the present proposed reforms, we expect that parties and the court will benefit from a smoother and more predictable process of obtaining / ordering and ascertaining costs in the future.

Eversheds Harry Elias International Arbitration, Litigation & Dispute Management Practice Group

Eversheds Harry Elias regularly provides advice on complex international commercial disputes. We have extensive experience in advising and successfully representing multinational entities in international commercial arbitration and litigation. As a full-service Singapore law firm, we have full rights of audience before all tiers of Singapore Courts. We are therefore well placed to advise and support our clients in any arbitration-related court applications before the Singapore Courts.

For further information, contact:

Suressh S.
Partner, Eversheds Harry Elias
suressh@eversheds-harryelias.com
+65 6361 9883  

Francis Goh

Head, International Arbitration

Partner, Eversheds Harry Elias

francisgoh@eversheds-harryelias.com

+65 6361 9835

Shaun Leong

Partner, Eversheds Harry Elias

shaunleong@eversheds-harryelias.com

+65 6361 9369

Farrah Isaac

Senior Associate, Eversheds Harry Elias

farrahisaac@eversheds-harryelias.com

+65 6361 9898

Zhuang Changzhong

Associate, Eversheds Harry Elias

changzhong@eversheds-harryelias.com

+65 6361 9820

Valencia Soh

Associate, Eversheds Harry Elias

valenciasoh@eversheds-harryelias.com

+65 6361 9829